What are the trade-offs that investors consider when making investments? Explain what each of
these aspects mean. Give one example of these trade-offs. (4 points)
please say it simply not in major paragraphs
1. Risk vs. Reward: Investors weigh the potential returns of an investment against the level of risk involved. Higher returns typically come with higher risk. Example: investing in volatile stocks vs. stable government bonds.
2. Liquidity vs. Returns: Investors balance the ease of converting an investment into cash (liquidity) with the potential returns it can generate. Example: keeping money in a savings account for quick access vs. investing in a long-term bond for higher returns.
3. Diversification vs. Concentration: Investors decide whether to spread their investments across various assets or focus on a few. Diversification can reduce risk but limit potential for high returns. Example: investing in a mix of stocks, bonds, and real estate vs. putting all money into one stock.
4. Time horizon vs. Returns: Investors consider how long they are willing to hold an investment in order to achieve their desired returns. Longer time horizons may lead to higher returns but can tie up capital. Example: investing in a retirement account with a 30-year horizon vs. day trading for quick gains.