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Understand the relationship between risk and return from "summary" of The Four Pillars of Investing: Lessons for Building a Winning Portfolio by William J. Bernstein
To succeed in investing, it is essential to grasp the critical relationship between risk and return. This concept is at the core of building a winning portfolio. In the financial world, risk and return are inseparable companions. The higher the potential return of an investment, the greater the risk you must take on. Conversely, if you seek safety by investing in low-risk assets, you will also be limiting your potential returns. This trade-off between risk and return is a fundamental principle that every investor must understand. Risk can take various forms in the investment world. One common type of risk is market risk, which refers to the possibility that the overall market will decline, leading to a decrease in the value of your investments. Another type of risk is specific risk, which is related to individual investments. This risk can arise from factors such as poor management decisions, industry changes, or competitive pressures. By diversifying your portfolio, you can miti...
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