There is supposed to be one fundamental truth in investing: If you take on more risk, you can expect a bigger reward. With new research suggesting that things may not be so simple, investors may want to adjust their strategies—or at least their expectations—accordingly.
Boston-based asset manager GMO recently looked at risk and return data for U.S. stocks from 1970 to 2011, and what the researchers found is surprising: The riskiest 25 percent of stocks—those most vulnerable to swings of the broad market—logged an average annual return of just over 7 percent per year. The least-risky 25 percent of stocks returned 10.6 percent per year. On a $10,000 investment over those four decades, the lower-risk stocks would have yielded more than $450,000.
