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1. Given that higher risk investments, such as small-company stocks, have outperformed other...

Question:

1. Given that higher risk investments, such as small-company stocks, have outperformed other investments over time, why don't all investors choose to invest only in these high risk securities?

Small Company Stocks:

Small-company stocks are determined on the basis of the market float value of all the stocks of the firm. The classification differs from index to index and there is no hard rule for the classification.

Answer and Explanation:

The statement states that since the small stocks are high-risk investments, not all investors invest in them, because the risk in these stocks would be greater than their risk tolerance level. With higher returns, usually, a higher risk follows. The investors risk losses if they invest in such stocks.


Learn more about this topic:

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Investment Risks: Definition & Types

from CFP Certification Exam Study Guide - Certified Financial Planner

Chapter 8 / Lesson 1
4.6K

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