Lesson 2: Risk vs. Reward

About 30 minutes — Activity-based lesson

What You Will Learn

This lesson covers:

What is risk: the chance of losing some or all of your money
What is reward: the potential gain from an investment
The risk-reward tradeoff: higher risk = higher potential reward
Diversification: not putting all your eggs in one basket

What is risk: the chance of losing some or all of your money

This section covers the key ideas about what is risk: the chance of losing some or all of your money. Discuss with your group or family and explore the concepts together.

What is reward: the potential gain from an investment

This section covers the key ideas about what is reward: the potential gain from an investment. Discuss with your group or family and explore the concepts together.

The risk-reward tradeoff: higher risk = higher potential reward

This section covers the key ideas about the risk-reward tradeoff: higher risk = higher potential reward. Discuss with your group or family and explore the concepts together.

Diversification: not putting all your eggs in one basket

This section covers the key ideas about diversification: not putting all your eggs in one basket. Discuss with your group or family and explore the concepts together.

Check Your Understanding

1. What is risk in investing?

Answer: Risk is the chance that you could lose some or all of the money you invested. Higher-risk investments can lose value quickly.

2. What is the relationship between risk and reward?

Answer: Generally, higher potential rewards come with higher risks. Safe investments grow slowly; risky investments might grow fast but could also lose value.

3. What is diversification?

Answer: Diversification means spreading your investments across different types so that if one loses value, others might still do well. It is the 'do not put all your eggs in one basket' principle.

4. Is it possible to invest with zero risk?

Answer: No investment is completely risk-free. Even savings accounts have the risk that inflation will outpace your interest earnings. The key is managing risk, not eliminating it.

Key Takeaways

What is risk: the chance of losing some or all of your money
What is reward: the potential gain from an investment
The risk-reward tradeoff: higher risk = higher potential reward
Diversification: not putting all your eggs in one basket

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