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What are risk adjusted returns?

Bigger isn't always better! Risk adjusted returns is a concept every investor should be aware of. What is it? How much additional return on investment do you receive for each additional unit of risk you take on? To understand what that sentence means, we must first understand what 'risk' is. It's volatility! I.e. What is the probability that the investment will actually achieve the average/expected/mean return? And if it doesn't, how many standard deviations is it likely to be away from it? It's volatility! When analysing the return of an investment it's important to always look at it in the context of volatility - the Sharpe ratio is one measure of this. Very simply, as rationale human beings, we will only invest in more 'risky' investments if the expected payoff (return) warrants doing so. This fundamental principle outlines why '20%, risk-free investments' do not exist. #RiskAdjustedReturns #InvestingWisdom #OptimalPortfolio #VolatilityMatters #SharpeRatio #UnderstandingRisk #RationalInvesting #ExpectedReturns #RiskVsReward #InvestmentStrategies #MaximizingGains #SmartInvesting #PortfolioManagement #InvestmentInsights #DiversificationBenefits #BuildingWealth #FinancialSecurity #CalculateRisk #MarketVolatility #MeanReturnConcept #StandardDeviationsAnalysis #InvestmentPrinciples #RiskManagementSkills #FinancialEducation #ProfitPotentialEvaluation #RiskMeasurementApproach