Do you speak riskese? Residents of China speak Chinese, residents of Japan speak Japanese, lawyers speak legalese, and top-notch investment advisors, casino statisticians and insurance underwriters all speak riskese. It is the language of risk, return and time, also known as risk management. If you don't understand it, then you should just invest in Treasury Bills. They are risk free.
Risk, return and time are all intertwined. Higher exposure to the right risk factors leads to higher expected returns. The longer you hold a risky investment, the more likely you will obtain the long-term expected return. However, because of "random drift," risk is very unpredictable in the short run, but it can be quantified far more accurately than gut feelings and intuition in the long run. For example, you can flip 10 heads in a row with a coin, but there is still a 50/50 chance that you will flip heads the next time and in the long run. Remember that if there is no risk, there is no reason that you can expect a higher return than Treasury Bills, which have paid an annualized return of 3.8%/year for the last 70 years, just 0.5% over inflation.
High risk exposure is like a scream-inducing roller coaster, with soaring highs and stomach churning lows. If you do not like the the ride, you should get on a milder one. On the roller coaster, the greater the ups and downs, the greater the returns... measured in thrills. The same thing applies to investing. However, not everybody has the "capacity" for such "exposure" to risk. In this step, we will show you simple charts that explain the concepts of risk, return and time.