How is the relationship between risk and return described in investments?

The relationship between risk and return in investments is fundamentally understood through the principle that higher risk typically correlates with the potential for higher returns. This is rooted in the risk-return tradeoff, which suggests that investors must be compensated for taking on additional risk. When investors decide to engage in riskier assets, such as stocks or cryptocurrencies, they do so with the expectation that these investments could yield greater profits compared to safer assets like government bonds or savings accounts, which often provide lower returns.

This relationship is observable in financial markets, where riskier investments have historically offered higher average returns over long periods. Investors who are willing to accept the possibility of losses in exchange for potentially greater gains are embracing this tradeoff. Thus, the correct choice accurately reflects this fundamental concept in finance, underscoring that those who are prepared to take on more uncertainty are seeking higher rewards for their willingness to endure that risk.