Question

Which statements describe the role of risk in making investment decisions? Check all that apply.

When discussing investments, “risk” is the possibility of little or no return.
Risk is an element to consider when investing in stocks.
Low risks typically have high returns.
The higher an investment’s risk, the greater its potential return will be.
When making an investment, profits are always guaranteed.

Answer 1

Correct choices:
- Risk is an element to consider when investing in stocks.
- The higher an investment’s risk, the greater its potential return will be.

Why:
- Risk is a core factor in stock investing because prices fluctuate and you can lose money or earn less than expected.
- Generally, investments that carry higher risk offer the potential for higher returns to compensate investors (but higher return is not guaranteed).

Why the others are incorrect:
- “Risk” is more broadly the chance of losing money or getting returns different from expected, not just “little or no return.”
- Low risks typically have low (not high) returns.
- Profits are never guaranteed when investing.