Reward must be viewed as . . .

Compensation

Expectation

Compensation

Reward or return is the compensation an investor receives for risking loss of investment principal (even if that risk declines over time). For this reason, investments posing a greater possibility of principal loss must provide higher returns than less risky investments in order to induce investor interest.

Expectation

Investors expect categories or "classes" of assets with higher potential risk to provide higher rewards. And, while over time individual securities within that asset category may indeed cause investment losses, investors will eventually demand and receive sufficient rewards to compensate them for the risk of investing in the broader asset class.

 

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