Dear reader,
I see that look of skepticism in your eyes. Allow me to explain.
Too good to be true?
Any investment’s risk-return ratio has traditionally been generalised as either: ‘High risk, high returns’ OR ‘Low risk, low returns’.
Over time, with increasingly sophisticated investors and hence, increasingly diverse and complex financial products, financiers began to plot these products across a risk-return trade-off map, of the traditional returns products would generate in return for risk.
How does one understand this? By going back to basics.
Exactly how do you determine returns? That’s easy.
For most financial instruments, the Return On Investment (ROI) or how much you profit from investing can be measured either by capital gains or dividend/coupon yields.
Capital gains are the price appreciation of your investments e.g. increasing share prices, currencies strengthening against others, in-demand tradable bonds, etc. in the markets.
Dividend/Coupon yields are the distribution
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