What is risk and return in investing?

Our summary

A beginner-level Khan Academy lesson on the two numbers behind every investment decision.

• Return on investment (ROI): the basic version is the gain divided by what you put in. Put in $100, get back $110 a year later, and that is a 10% annual return.
• Comparing returns: a 20% return beats 10% only if the risk is similar.
• The trade-off: the video's central point is that higher expected returns usually come with higher risk; you are rarely paid more for taking the same risk.

Our take: the same logic applies to trading. A strategy promising large returns without large risk is a red flag. Read why most traders lose money.