Is there anywhere a graph of "return-on-investment" vs "risk" for various different investments?

On this graph would appear several data points, like:

  • "Short-term deposit in dollars", 1% return-on-investment, 0% risk
  • "Index funds", 10%, 10%
  • ...

I am not going to define the 'risk' column here, but I'm sure someone must have defined it in a numerical form that allows such comparisons.

  • 1
    "Volatility" would be a reasonable measure of risk. – barrycarter Oct 10 '11 at 2:56

There may well be several such graphs, I expect googling will turn them up; but the definition of risk is actually quite important here.

My definition of risk might not be quite the same as yours, so the relative risk factors would be different.

For example: in general, stocks are more risky than bonds. But owning common shares in a blue-chip company might well be less risky than owning bonds from a company teetering on the edge of bankruptcy, and no single risk number can really capture that.

Another example: while I can put all my money in short-term deposits, and it is pretty "safe", if it grows at 1% so that my investment portfolio cannot fund my retirement, then I have a risk that I will run out of money before I shuffle off this mortal coil. How to capture that "risk" in a single number?

So you will need to better define your parameters before you can prepare a visual aid.

Good Luck

  • I'm not looking to "prepare a visual aid", I'm looking for a visual aid for myself :) – ripper234 Apr 4 '10 at 5:18
  • 1
    My point was that you would have to agree with the person who made the graph's definition of risk, which is possible but unlikely. – sdg Apr 4 '10 at 17:04

Yes, there is a very good Return vs Risk graph put out at riskgrades.com. Look at it soon, because it will be unavailable after 6-30-11. The RA (return analysis) graph is what I think you are looking for.

The first graph shown is an "Average Return", which I was told was for a 3 year period. Three period returns of 3, 6 and 12 months, are also available. You can specify the ticker symbols of funds or stocks you want a display of. For funds, the return includes price and distributions (total return), but only price movement for stocks - per site webmaster.

I've used the graphs for a few years, since Forbes identified it as a "Best of the Web" site. Initially, I found numerous problems with some of the data and was able to work with the webmaster to correct them. Lately though, they have NOT been correcting problems that I bring to their attention. For example, try the symbols MUTHX, EDITX, AWSHX and you'll see that the Risk Grades on the graphs are seriously in error, and compress the graph results and cause overwriting and poor readability.

If anyone knows of a similar product, I'd like to know about it. Thanks, George

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