Introduction
Investing is all about trying to get a good return without taking on more risk than you can handle. Some assets are considered safer than others, like government bonds or gold. On the other hand, investing in things like stocks, cryptocurrencies, or real estate usually means accepting higher risks.
Risk premium is a handy idea that helps guide investors as they look for ways to grow their money while keeping an eye on potential risks.
Risk Premium Explained
When you put your money into riskier options, there is a natural expectation of better returns. That extra bit you’re hoping to earn, compared to a safe investment, is what we call the risk premium. It’s basically the gap between what you hope to earn from a risky investment and what you could earn from a safe one.
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