Select the true statement about risk when investing. only people who have more than $100,000 in a savings account should invest in the riskier investments. typically, the higher the risk, the higher the potential for return. typically, the lower the risk, the higher the potential for return. collectibles are the least risky.

FALSE: Only people who have more than $100,000 in a savings account should invest in the riskier investments.

TRUE:  Typically, the higher the risk, the higher the potential for return.

FALSE:  Typically, the lower the risk, the higher the potential for return.

FALSE: Collectibles are the least risky.

Explanation:

The correct answer among the listed items is "the higher the risk, the higher the potential for return. This is referred to as the risk-return trade off. When investors make investment they compare the risk-return profile of several investment options. Typically, investors expects that the more risky an investment is the more return it should offer otherwise nobody will invest in it. The idea that higher risk is associated with higher returns does not guarantee that returns will actually be high; it only means that there is a probability for high returns. For instance, bonds are typically low risk investment when compared with stocks. Therefore, bonds typically have less return than stocks. However, it is possible to make losses in stocks with high return due to the high level of risk.

Return is the profit from investment as a percentage of invested capital. Risk of an investment is the degree of uncertainty of returns of an asset.

Investment in riskier asset depend on not only the net-worth of the investor but also on the risk profile of the investor (willingness and ability to take risk). Thus, people with less than $100,000 in savings account can take riskier investment as long as their risk profile allows it.

Government Bonds are the least risky investment and not collectibles. Collectibles are alternative investment. They are objects that worth more than they were originally sold for.  

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