“Risk hai toh ishq hai"
“Greater the risk, Greater the return”
No Harshadji, it doesn’t work that way!
These notions have created a generation of people almost completely equating high returns with high risk. Investor obsession with penny stocks, cryptos, and startup stocks is telling of this temptation.
It may sound counterintuitive, but it is the low-risk assets that have generated a better long-term return.
A trio from HBS, NYU, and Accadian Asset Management studied returns of the 1,000 largest stocks from 1968 to 2008.
Their surprising conclusion: $10,000 put in the riskiest 20% stocks, and with the portfolio refreshed monthly, would have shrunk 5.5% annually to less than $1,000 after inflation over the 41 years studied.
The same amount invested in the least risky 20% would have grown to an inflation-adjusted $100,000, representing an annualized 5.8% return (1.6 % above the S&P 500)
Sad that people would still buy high-risk assets. As Daniel Kahneman says - People would always prefer a lottery ticket, even with almost 0 odds of payout, as against low-risk investment with assured returns.