In theory, higher risk means higher expected return. But look at emerging market vs US market.

I think some individual stocks in emerging markets might offer higher expected return than the S&P. However, The equity indices or mutual funds on emerging markets actually show lower average return than S&P. Volatility is higher but mean historical return is also Lower. In my (untrained) thinking, the theory is broken and the truly higher risk doesn’t mean (lower current price and) higher expected return.

Therefore, my default eq allocation is 100% US. I still invest in emerging markets because … I just hope emerging markets provide a bit of uncorrelated return.

Many funds advertise as small stock. Theoretically higher risk higher long-term return. Reality — higher volatility, and invariably Lower return either short or long term.  Once a while I see a small stock fund showing higher return than benchmark over the years before 2008.

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One area that higher risk indeed leads to higher return is HY — my “favorite” asset. Return in terms of monthly dividends is indeed higher than other bonds.

I feel in general the bond market supports most of the theories like that.