When one goes to invest money there are a variety of invest options at their disposal. All investments, however, must be viewed from the concept of what is known as the risk to reward ratio. A risk to reward ratio compare the level of risk one takes wit their money to the level of reward one can receive. Risk is a situation in which the outcome of an investment is not certain, but the probabilities can be estimated. Return, of course, is the actual amount of money the investor receives from an investment.
Investors are cognizant of the fact that financial assets are risky.
Assets may fluctuate with price, or the agency that issued the asset may fail to redeem it leaving the lender with a loss. Therefore, investors demand a higher return to compensate for higher risk. Typically low risk investments receive little or limited reward. For those more adventurous investors, however, they may partake in very risky investments and have the potential to make a lot of money. Of course, since the risk is high, they may lose all of their money as well.