What is risk-return trad-off? Give real life example to explain this?

Risk return trade-off means that you have to risk money to make more money.

If you put your money into government bonds it is nearly guaranteed you will get your money back, unless the government goes bankrupt or is taken over which isn't likely. So they don't pay much interest.

On the other hand the stock market is more risky... companies can go bankrupt more easily, bad news can drop the price or good news can raise is drastically, so there is the potential to make a lot more money.

Just think about banks... if you have good credit they will give you a lower interest rate. If you have bad credit, they will charge you a higher interest rate because it is more risky that you won't repay your loan.

The risk return trade off in investing the principle that the higher the risk of an investment, the higher the expected return. For example: when buying bonds, you would expect to receive a higher rate of return the longer the term of the bond. A 1 year bond (or CD for that matter) would pay less then a ten year bond. This is because the longer they hold your money, the higher the risk of default. There is more uncertainty in yen years than one.

Another example would be with stock investing. Penny stocks for example are much cheaper than established companies. There is more of an expectation that the established company will still be around in five years, but there is less of a chance that the price of the established company will not increase substantially. The newer, smaller company on the other hand could increase substantially if it does well and and becomes profitable in a short period of time. The investors are "rewarded" for taking the higher risk.

So there ya go. Let me know if this helps.