Explain the risk-return trade-off concept concisely.

Risk-return trade-off concept: This is the concept that the level of return on investment should increase as the level of risk increases.

High risk is related with high probability of higher return and the low risk related with the high probability of smaller return. This trade off between risk and return, which an investor faces during investment decision is called Risk-return trade-off.

In simple words, investors will be less likely to pay high price for investments which has low risk level, for eg. high grade government bonds.

Every investors have different level of tolerance for risk they are willing to accept. Some of them will readily invest in investment having lower return because low risk associated with it. Others have high risk tolerance so they will buy high risk associated investments seeking of higher return. Also some investors make a portfolio of lower risk, lower return and higher risk and higher return investments for achieving balanced risk return trade off.