What Is The Relationship Between Risk And Return

Risk and return are two concepts that cannot be ignored in business economics. The two concepts go hand in hand with the other since return reflects the risk that the entrepreneur had taken (Brandy, 2012). Additionally, the entrepreneur takes a risk depending on the return that he/she intends to make from the investment. It is not all times that greater risks lead to greater returns. Therefore, the statement greater risks lead to greater achievement or returns and vice versa are not always true. However, there is a positive correlation between risks and returns (Brandy, 2012). The content of this study will revolve around risk and return; and how the two assists in future business ventures.

Relationship between Risks and Returns

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More specifically, when one invests little capital or resources in business, he/she is likely to get low returns from the investment. There is low risk in the low level of investment because, if the business fails, the investor loses the little he had ventured into the firm. Conversely, if the business succeeds the investor will gain little from what he/she invested (Elkington & Hartigan, 2008). For instance, if one person starts a small shop and another start a supermarket all in the same building and fire happen to break out, the two investor experience different impacts. If the fire exhausts everything in the building, the supermarket proprietor will suffer huge loss hence high risk than a shopkeeper. On the other hand, if the two businesses succeed, the supermarket owner will gain higher returns than the shopkeeper

For example, investing in materials and tangible goods is riskier than any other business (Elkington & Hartigan, 2008). Products like vehicles and electronics need a significantly higher amount of capital to start a business and at the same time, they are many risks that surround them. These risks include losing, breakages, fire, and others. If the stock gets burnt or disappear, the investor will be in for a big loss. On the other hand, if the business prevails, the investor will make some good profit from his/her investment (Elkington & Hartigan, 2008).

Other businesses like government bonds and bank accounts have small risks (Sprit & De, 2016). Just like the risks, the returns from these businesses are very low. They have never benefited any business investor at such. People just deposit money leave the investment at that point. Much money clients can make from his/her banks ' accounts is one point two percent of the total deposit within a year. This little moneymaking business has neither risk nor do investors expect good returns from them (Elkington & Hartigan,