“Higher risk, higher return” is one of the oldest ideas in investing.
And broadly speaking, it’s true. Stocks have outperformed bonds over time. Bonds have beaten cash.
But taking more risk does not guarantee higher returns. Put it all on black, and you may win big—but you also might go bust.
And not only does it not pay off all the time, but it doesn’t even always pay off over what many investors would consider a very long time. As I showed you last week, small stocks, despite being riskier, have trailed their larger, steadier counterparts over the past 35 years.
The point is to take risks intelligently. And while today’s tech giants look unstoppable, that may be creating opportunity in smaller stocks.
The question for investors is: How should you access that part of the market?
If you choose wisely and partner with a genuinely talented active manager, aggressive investing can absolutely pay off.
That’s easier said than done—particularly at Vanguard.