What does Principle 2 state about the relationship between risk and return in investments?

Principle 2 states that there is a risk-return tradeoff in investments. It indicates that while higher-risk investments are not guaranteed to yield higher returns, they are expected to provide higher returns on average compared to lower-risk investments.

Principle 2 emphasizes the relationship between risk and return, asserting that investors who take on more risk should expect to receive higher returns in compensation. This principle acknowledges that while higher-risk investments may not always result in higher realized returns, the average expectation is that they will yield greater returns over time. Therefore, understanding this tradeoff is crucial for investors when making decisions about their investment strategies.