Why do we invest? To make money, of course. But have we ever considered if the return we earn is commensurate with the investment risks we’ve taken? Put another way: It can be misleading to just look at headline figures when evaluating investment returns.

For instance, Bitcoin had a wild run in 2017 and its return for that year surged to nearly 1,900%. But once you adjust for risk – the chance of losing some or all of an investment – Bitcoin’s risk-adjusted return plummeted to a meagre 3.1%. Comparatively, the S&P 500 produced risk-adjusted return of 11% during the same period.

Whether or not an investment is worth buying clearly depends on how much risk was involved in generating those returns. This sums up risk-adjusted returns, a concept which allows investors to directly compare investments by measuring the risk taken to produce their respective returns. If two