Welcome to one of investing's most important rules: the risk-return relationship.

Simply put, investments that offer higher potential returns usually come with higher potential risks. There's generally no "free lunch" in investing.

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Think about it - why would anyone accept low returns if high returns came with no extra risk?

Investment risk means the possibility that you could lose some or all of your money, or that your returns might be lower than expected.

It's like the weather - sometimes it's sunny (good returns), sometimes it rains (losses), and you can't predict it perfectly.

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Can you think of one way that stocks might be riskier than keeping money in savings?

Let's use what we've learned about stocks and bonds. Stocks are riskier because company values can swing wildly up or down based on business performance.

But historically, stocks have also provided higher average returns over long periods - often 7-10% per year.

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Why do you think investors accept this higher risk in stocks?

Bonds are generally less risky because you're promised specific interest payments and your money back. The borrower is legally obligated to pay you.

However, bonds typically offer lower returns - maybe 3-5% per year - because of this lower risk.

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Which would you choose: guaranteed 4% or possible 10% with risk of losing money?

Here's a key insight: you can't eliminate risk entirely, but you can choose your level of risk based on your goals and comfort.

Conservative investors might prefer bonds' steady 4% over stocks' unpredictable swings. Growth-focused investors might choose stocks despite the volatility.

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What factors might influence someone's risk tolerance?