One of the Most Famous Rules of Investing Might Be Totally Wrong
The risk-reward relationship is Bunk (not Truth).
40 years of stock market data show that bets on riskier stocks—as defined by their vulnerability to broader swings in the market—generate lower returns than safer investments do. Factor in tail risk and the rewards become evident, but that’s not the kind of risk most investors base their picks on.
There is supposed to be one fundamental truth in investing: If you take on more risk, you can expect a bigger reward. With new research suggesting that things may not be so simple, investors may want to adjust their strategies—or at least their expectations—accordingly.