The financial market has always been a diverse entity, and one that continues to evolve in terms of the range of assets available to investors.

Of course, not all of these investment assets have been created equal, so the key is to build a balanced but diverse portfolio that can deliver optimal returns while minimising your risk to exposure.

But what’s the relationship between risk and reward, and what are the best potential investment strategies to help optimise your future returns?

Why Do Large Returns Carry Increased Risk?

Whenever investors identify assets that offer an increased rate of return, particularly over a relatively short period of time, it’s widely accepted that this will be an incredibly risky proposition.

Of course, this type of investment often has the potential to double your initial principal amount, but such inflated yield incur significant risk and considerable losses in some instances.

To understand this further, let’s take a look at the forex market. Here, you can speculatively trade international currencies in pairs and as derivatives, while accessing inflated leverage to control disproportionately large positions and pursue larger returns.

As you increase your leverage, however, you also embrace inflated margin, which can also cause disproportionate losses when positions turn against you or you fail to introduce so-called “stop losses”.

This highlights how the size of your investment, and its potential returns impacts on risk, with the rule largely evident across all markets and asset classes.

How to Optimise Your Returns as an Investor

Given the universal challenge of balancing risk and reward when pursuing increasingly lucrative investments, the question that remains is how can you effectively manage risk while optimising your returns over time.

The first step should be to seek out expert advice on your investment management, as this enables you to create a diversified portfolio that combines different assets and optimises your potential returns over time.

Diversification is key to minimising your capital’s exposure to risk and maximising returns across a broad range of asset classes, particularly in the midst of a bull market. During such periods, there’s a risk that your stock allocation can become disproportionately large, creating the potential for a crash if you’re unprepared or lack a proactive approach to managing your investments.

Expert advisors can also help you with the regular process of rebalancing your assets, which helps your portfolio to adapt to changing market conditions.

On another note, you should also consider finding lower cost routes to market and ways to invest. Remember, such expenses eat into your returns, and reducing costs by just 1% can make a huge difference in your portfolio’s performance over time.

One particularly viable option is to combine low-cost options such as dividend stocks and corporate bonds alongside derivatives like forex within your portfolio, as this creates a desirable balance while minimising transaction costs.