Risk and Return

Investment strategies are the fundamental sources from which investment returns derive — they are the risks that investment managers must take in order to generate any return at all. Although these strategies frequently operate in combinations that produce the wide variety of very differently structured return streams available to investors, the chapter identifies particular types of investment strategies only. This chapter examines these investment strategies and the few quite distinct roles that time plays in the context of investment. Return enhancers are applied to investment strategies in order to make their return streams more attractive, whether from a risk or a return perspective. Almost all of them involve risks of their own, as the most notable and common of them certainly do. However, they do not themselves produce the returns that investors seek but rather accentuate the returns generated by one of the investment strategies. The strategies to which return enhancement techniques are applied provide the targeted returns, and in most cases one can regard return enhancers as overlays on those strategies. The chapter also discusses the role of time as the denominator of returns that affects all investments.