--Friedrich von Schiller
The returns you get are proportionate to the risk you take. This is a fundamental law of the markets. It's why five-year CDs typically pay more than six-month ones and why you're disappointed if your emerging markets fund does no better than its stodgy blue-chip stablemate. History unequivocally supports this "no free lunch" principle. Going back to 1926, stocks (high risk) have paid more than government bonds (medium risk), which in turn have beaten low-risk Treasury bills.
Among many, many other things, this law suggests:
- To earn returns high enough to build true wealth, you have to put some of your money in risky assets like stocks--the only investment to handily beat inflation over time.
- If a financial salesperson tries to tell you his product offers a high return with no risk, get that claim in writing. Then send it and his business card to the SEC.