Although many of these investment types overlap, the following examples illustrate the general idea of the progression.
The lowest end of the spectrum is dominated by short-term loans to government bodies. This is because the time frame of the investment is short and inflation should have the least amount of financial impact. An example of this is a 30-day T-Bill from the United States.
Longer term investments into government bodies, such as Treasury bonds, generally lie on the next level of the progression. These are longer-term investments, however, are stable when issued by a reliable government.
Investments into corporations are the next step on the risk-return spectrum, these include short-term and long-term loans. This is influenced by the credit rating of the company. The lower the credit rating, the higher the risk on the investment.
Commercial rental property and high-yield debt continue up the chain of progression. These are widely considered speculative investments that can include a high volume of risk, but also provide a greater return.
Investing in the equity market, such as small-cap stocks, provide some of the largest risks in the economy. This is also true for the futures market.
Many investors who understand the risk-reward spectrum use this progression to hedge against losses, while still maintaining the possibility for greater returns.