In finance, it’s a core belief: the higher the risk, the higher the return.
Yale Insights points out that professor Roger Ibbotson “isn’t exactly a heretic, but he doesn’t view the concept of high risk, high return as absolute. In fact, in some instances, he’s found, lower risk is associated with better returns.”
“Ibbotson analyzed the performance of thousands of stocks from 1972 to 2013, categorizing them based on factors such as beta (volatility as compared to the market as a whole), value or growth orientation, market capitalization, and liquidity. The researchers focused on the U.S. stock market, as previous studies had shown that higher-risk asset classes outperform lower-risk ones. For example, stocks have better long-term returns than bonds. The expectation was that even within a market, this would hold true. Instead they found that portfolios of lower-risk stocks — the less volatile, value-oriented, bigger, and less liquid — chosen from the universe of U.S. stocks brought the higher returns, and often ‘quite dramatically.'”
This is an interesting development and may well change the way that many investors do their work. Why take a chance on a high risk investment when you can get a better return on a lower risk one? Buying stocks of a large company, such as Apple for example, is one of the best low risk investment you can make as over the long term, Apple’s stock looks pretty safe. If you are looking to buy apple shares uk then you will need to find a stock broker who offers Apple stocks.
Watch the video for more.