For many investors, risk is generally considered to be related to bad news. What many individuals fail to realize is that all investment entails risk, and that any investor who wishes to obtain a return that is higher than the risk free rate must assume investment risk.

Modern portfolio theory assumes that investors are rational beings who are risk averse and that given equal returns, will prefer an investment that has the lower risk. If two investments have equal risk, a rational investor will prefer the investment with a higher return. Investors are not as averse to risk as they are averse to losses.

A forecast of a security's return is an expected or anticipated value which is representative of the investor's expectations of the return distribution for the security, and the expected return includes both the expected realized and unrealized annual income. Historic returns are not good predictors of future returns.