One way of looking at the risk vs. reward tradeoff is through a concept known as the “equity risk premium” (ERP).
One way of looking at the risk vs. reward tradeoff is through a concept known as the “equity risk premium” (ERP). This is an estimate of the expected return you gain from stocks. The percentage you can expect to earn on a stock over the so-called “risk-free rate,” the current interest rate you could get by putting your money in almost zero-risk government bonds. Without the potential for robust gains, all stocks would head straight to the basement.