Which of the following best describes a risk-averse investor?

A risk-averse investor is characterized by a preference for lower returns accompanied by reduced risk. This type of investor prioritizes the preservation of capital over potential high yields. They are likely to choose investments that are more stable and have a track record of consistent performance, even if this means sacrificing some potential for higher returns that come with greater risk.

This behavior stems from the natural inclination of risk-averse individuals to avoid uncertainties and potential losses. They stand to lose more in volatile markets, thus preferring to secure their investment in safer options, even if those options yield lower financial returns. This approach aligns with general investment principles that suggest that high returns are often associated with higher levels of risk, which a risk-averse investor seeks to minimize.

In contrast, the other choices describe characteristics that are not consistent with risk aversion. For instance, the preference for high returns with significant risk indicates a risk-seeking behavior, while indifference to risk suggests a neutral position that lacks the caution typical of risk-averse individuals. Seeking volatile markets further contradicts the foundation of risk aversion, as volatility is a hallmark of uncertainty and potential for loss.