high risk, high reward

Syllable breakdown

Dictionary meaning

a financial idiom expressing the fundamental principle of the risk-return trade-off — that investments offering potentially high returns necessarily come with higher probability or magnitude of loss, while safe investments necessarily offer lower potential gains; the phrase is used to justify aggressive, speculative, or concentrated investment strategies — venture capital, leveraged positions, emerging market investing — by invoking the expected compensation for bearing higher risk; in formal financial theory the risk premium is the expected excess return above the risk-free rate that investors require to compensate for bearing asset-specific or systematic risk; while the high-risk-high-reward principle is sound as a general statement about efficient markets, it can be misused to justify clearly poor risk-return trade-offs by invoking the possibility of reward without adequately quantifying the probability and magnitude of potential losses; the phrase is also used more broadly beyond finance to justify any high-stakes choice or speculative venture