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What is Risk Return in Investing? A Simple Explanation for Kids, Teens and Beginners

What is Risk Return? Investing 101: Easy Peasy Finance for Kids and Beginners

Introduction to Risk Return for Kids and Teens

This video explains the concept of risk return in a simple, concise way for kids and beginners. It could be used by kids & teens to learn about risk and reward, or used as a money & personal finance resource by parents and teachers as part of a Financial Literacy course or K-12 curriculum.

What is Risk Return in Investing - A Simple Explanation for Kids Teens and Beginners
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Suitable for students from grade levels:

  • Kindergarten
  • Elementary School
  • Middle School
  • High School

The topics covered are:

What is risk return?

Howdy Wall St. Willy!

Risk Return for Kids Teens and Beginners
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I keep hearing about risk and return whenever I read about investing. But what is risk return anyway?

Risk return is a theory in personal finance that talks about the relationship between risk and returns called risk return tradeoff or risk reward tradeoff.

It says that generally the higher the risk, the higher the possible return is.

As a consequence, we can say that if someone wants to earn a higher return, they would need to take a higher risk, which means that they would need to be prepared for a higher possibility of losses.

Well, can you give me an example of risk return in investing?

Sure, I can.

Generally, stocks are more volatile and therefore are considered risky. So, investment in stocks has a potential for a higher return in the range of 7 to 8 % a year on average.

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On the other hand, bonds are less volatile and are therefore considered less risky. So, investments in bonds has a potential for a lower return in the range of 2 to 3% a year on average.

Is this relationship between risk and return always true?

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Does a high risk always give a higher return?

No. If a higher risk always gave a higher return, then it wouldn’t be a risk, right?

A higher risk has a higher possible return, which means that the return can be high but it is not guaranteed.

Can a low-risk investment ever provide a higher return than a high-risk investment?

Risk Return or Risk Reward Trade Off in Investing
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Yes. It is possible in the short term but highly unlikely in the long run.

Thank you very much for telling me about risk and return, Wall St. Willy.

You are welcome, Sooper Cooper. Remember, Finance is Your Friend!

Video Featured in the Below Financial Literacy Course for Kids & Teens

Download Transcript: Ideal for Use by Teachers in their Lesson Plan to Teach Kids & Teens

Podcast: What is Risk Return Trade Off?

Risk Return
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