1-2 Risk and Return
A page for understanding return and risk properly, and finding a balance you can stick with when prices move
1-1
sorted out your money you grow long term. Next, look at how to think about return and risk. Equities and mutual funds can grow your assets through price appreciation, but their prices can also move a lot day to day. The point is not simply to fear that movement. It is to know how much variation you can absorb calmly, and then pick products that match.
This page lays out the basics of return and risk, and builds the foundation for choosing things you can hold without strain.
- Think of return as
capital gainsplusincome gains. - Risk in investing is not plain "danger" — it is how large the price movement is.
- As a rule, the larger the return you can hope for, the larger the movement.
- To keep going long term, what matters is not just the upside but whether you can absorb the movement.
- Diversifying is not about eliminating losses; it is about avoiding severe damage.
1. Start with "how much movement can I absorb?"
Say you are investing ¥1,000,000 and you have two products.
- A: could reach ¥1,500,000, but could also fall to ¥500,000
- B: could grow to ¥1,100,000, and tends to stay around ¥900,000 if it falls
Which of the two looks like a better fit for you?
If you can put weight on A's larger upside, you probably find large price movement easier to absorb (a higher risk tolerance). Assets with a wide range, such as equities and gold, may suit you. If instead B reassures you — slower growth but less movement — then building around lower-movement products such as bonds may be the better fit.
2. Return is not only price appreciation
Investment returns split broadly into two. One is capital gains, from selling at a higher price than you bought. The other is income gains — dividends and interest received while you hold.
Equities, for instance, offer dividends on top of share-price growth. For bonds, the main return is interest. When you think "I would like about 5% a year", the products you choose differ depending on whether you are counting mainly on price appreciation or also on dividends and interest.
3. Risk means the size of the movement, not "dangerous"
Risk in investing does not carry the everyday sense of "dangerous". Here it refers to how much the price is likely to move up and down in future. You check risk not to avoid investing, but to confirm how much movement your money and your nerves can take.
If you are investing ¥1,000,000 in a product with 10% risk, picture it moving in a range of roughly ¥900,000 to ¥1,100,000. A high-risk product, on the other hand, might reach ¥1,500,000 — but could also fall to ¥500,000.
In other words, choosing a high-risk product means accepting both the chance of a large gain and the chance of a large fall. Generally, the more return you can hope for, the more risk comes with it.
4. Diversifying is for avoiding a big mistake
Diversifying is how you soften that burden. Spreading over time — staggering when you buy — helps limit the damage from putting everything in at a high point. Spreading across assets — combining several holdings or asset classes — shrinks the effect any single price move has on the whole.
5. Next, look at what differs between products
There is no single right answer that fits everyone. What matters is working out, in your own words, how much movement you can take calmly, and whether you want to weight price appreciation or dividends and interest.
Next, 1-3 Risk and return of the main products compares deposits, bonds, equities, and REITs, and sorts out the role each one plays in your finances.
1-1 What Does Investing Actually Involve?
A page for sorting out the jobs your money has, and your goals for purpose, timeframe, and amount, before you pick any product
1-3 Risk and Return of the Main Products
A page comparing deposits, bonds, equities, and REITs on the same axes, and sorting out the role each plays in your finances