When managing risks within, the managers need to be mindful of the risk and return trade‐off.Explain what that means

The risk and return trade-off is a fundamental concept in finance and investment management. It refers to the balance that an investor or manager must strike between the desire for the highest possible return on an investment and the need to minimize risk.

Here's a step-by-step explanation:

1. Understanding Risk: Risk in investment terms refers to the likelihood of an investment's actual returns deviating from its expected returns. This includes the possibility of losing some or all of the original investment.

2. Understanding Return: Return, on the other hand, is the gain or loss made on an investment. It's what you expect to earn from an investment in exchange for exposing your money to a certain level of risk.

3. The Trade-off: The risk and return trade-off is the principle that potential return rises with an increase in risk. Low levels of uncertainty (low risk) are associated with low potential returns, whereas high levels of uncertainty (high risk) are associated with high potential returns.

4. Role of Managers: When managing risks, managers must be mindful of this trade-off. They need to balance the potential for returns against the risk of achieving those returns. This often involves diversifying investments, or spreading them across a variety of different opportunities, to manage the risk.

5. Decision Making: If a manager is risk-averse, they may opt for safer investments with lower returns. If they're more tolerant of risk, they may choose investments with potentially higher returns, accepting the greater possibility of loss.

In conclusion, the risk and return trade-off means that to potentially achieve higher returns, one must be willing to accept a higher level of risk. Managers must keep this in mind when making investment decisions.