Does more risk mean a higher return?

A friend says that taking more risk means making more money.

What are risk and return? Return is your gain or loss, and risk is the uncertainty about it, which investors want to be paid for.

A friend choosing a fund says, “Taking more risk means I’ll make more money.” What would you say?

It guarantees a bigger gain

An uncertain outcome can include a loss. Taking a greater risk cannot turn that uncertainty into a promised gain.

It raises the expected return investors require

Investors usually demand a higher expected return before taking more risk. The actual result can still be a loss.

Demanding more from an investment does not ensure that it will deliver.

Expected return is an estimate made before the result is known. Wanting more of it for more risk is the risk-return trade-off.

It raises hopes but changes no decisions

An expected return helps an investor decide whether the uncertainty is worth accepting. It is more than an idle wish.

Risk and return

Who is behind it

Written by Christoffer Thimsen, PhD in finance, Aarhus University. Reviewed by Sander Schwenk-Nebbe, PhD in finance, Aarhus University. Last reviewed 16 October 2026.

How a lesson is made

Every number in the lessons is either calculated or taken from a dated source. A lesson opens only after a person has reviewed it, and any change is reviewed again.

We teach you about money, but we never tell you what to buy. We don't sell investments or earn anything from your choices.

Sources

  • Investor.gov: Risk and expected returnRisk involves uncertainty and possible financial loss. Investors generally require a higher expected return for greater risk, without a guaranteed result. A share makes its holder a part-owner of a company. If the company fails, owners receive only what remains after creditors are paid and may receive nothing.
  • Moneysmart: Choosing investmentsInvestment choices depend on goals, when money is needed and the ability to bear losses. Taking greater risk or waiting longer does not guarantee a gain or recovery.
  • Moneysmart: Owning units in a fundA fund pools many people’s money and invests it. Investors own units in the fund, not its underlying company shares directly. Each unit is a small part of the fund’s combined investments. Unit values can change, and a fund may make payouts to investors. An index fund aims to track an index.