Read risk and returns
Understand what a return claim leaves out.
Your route through the ideas
- Arithmetic average return
The sum of periodic returns divided by the number of periods.
- Geometric average return
The constant periodic return that produces the same compounded growth as the actual returns.
- Maximum drawdown
The largest percentage fall from a peak to a subsequent trough over an observed period.
- Diversification
Spreading exposure across different investments to reduce concentration risk.
- Risk premium
Extra expected return above a chosen lower-risk benchmark for bearing additional risk.
- Bond price and yield
For a fixed set of promised bond cash flows, a higher required yield implies a lower present price.