You Want High Returns? Let’s Talk About the Risk You’re Taking

If you’re looking for returns with zero risk, there’s actually a pretty simple solution, invest in US Treasury. At current rates, you can earn around 4% annually, backed by the full faith of the US government. That’s about as close to a “guaranteed” return as you’ll find in the financial world.

But here’s the catch: that’s the baseline. That’s the “risk free rate.” So if you’re aiming for more than 4%, you’re stepping into the world of risk, whether you realize it or not.

Doubling Your Money Sounds Great. But at What Cost?

Say you bought a stock and doubled your money. You feel like a genius. A 100% return is phenomenal, no doubt. But pause for a second. What kind of risk did you take to get there?

The return on its own doesn’t tell the full story. To evaluate any investment properly, you need to ask: what downside was I exposed to along the way?

Remember Warren Buffett’s two most important rules of investing:

1. Don’t lose money.

2. Don’t forget rule number one.

These aren’t just catchy sayings. They’re reminders that preserving capital is just as important as growing it.

Yes, You Can Make Great Returns in Expensive Stocks

Let’s take $PLTR or $NET as an example. It was expensive by traditional metrics, then it got more expensive, and now it’s downright super expensive. Yet people who held the stock made great returns anyway. The price kept going up, and investors who stuck with it were rewarded.

That’s the reality of growth investing. Sometimes what looks overvalued gets even more overvalued, and you make money in the process. But that doesn’t mean the risk wasn’t real. If market sentiment shifts or growth expectations are missed, expensive stocks can fall fast and hard.

$TSLA is another great example. For years, it traded at eye watering multiples. Yet it delivered staggering returns. But along the way, there were long stretches where it dropped 30%, 40%, even 60%. Anyone who held through those periods (myself included, I won’t $TSLA), carried real risk: psychological, financial, and portfolio level.

Risk Is Not Just Volatility

When people hear “risk,” they often think of volatility, how much the stock price moves up and down. But true investment risk is deeper. It’s the risk of permanent capital loss. The risk that you’re wrong about the business. That the market changes. That the company overpromises and underdelivers.

Balancing Return and Risk

The point here isn’t that you should avoid risk. Risk is a necessary ingredient if you want to earn more than the risk free rate. The key is to understand what kind of risk you’re taking and whether you’re being compensated for it.

There’s a big difference between:

-Taking a calculated risk on a high quality business with strong fundamentals, and

-Gambling on hype with no clear margin of safety.

Smart investing is about finding asymmetric opportunities, situations where the potential upside far outweighs the downside. It’s about being selective, patient, and disciplined.

Final Thoughts

Returns don’t exist in a vacuum. If you’re earning 20%, 30%, or even 100% on an investment, it’s worth asking: what did I risk to get here?And is that risk something I’d be comfortable taking again?

You can always park your money in Treasuries and collect your 4%. But if you’re reaching for more, make sure you understand how high you’re climbing, and what the fall might look like.

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