Saving, Managing Debt, and Budgeting

Risk / Reward

What are some limiting factors in using risk/reward ratios?

Most experts agree that use of risk/reward ratios is limited, as they do not take into consideration the probability of attaining a certain target or goal, or the probability of a certain downside risk. But through careful research, you may see the potential high and low. The model also does not take into consideration time or the occurrence of a macroeconomic event that may, in the short term, radically change the price of your investment, thus affecting our reward. So use risk/reward ratios as only one tool when making investment selections.


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