Final answer:
Stock market investments have the highest potential growth and the highest risk compared to savings accounts, government bonds, and CDs. Historically, stocks provide higher returns due to equity gains but come with significant volatility. High risk in investments doesn't inherently mean low returns; it signifies a greater potential for return alongside a higher possibility of loss.
Step-by-step explanation:
Between the options provided - a savings account, government bonds, stock market investment, and a Certificate of deposit (CD) - the choice with the highest potential growth and the highest risk is a stock market investment. The potential for growth in the stock market is significantly higher than the other options due to the nature of the equities and the influence of market conditions on stock prices. However, with this potential for high returns comes a greater level of risk, as stock values can fluctuate widely based on economic factors, corporate performance, and investor sentiment.
Historically, stocks have had a higher average return over time compared to bonds or savings accounts. This is because stocks represent equity in a company and can lead to gains from both dividends and increases in stock price. Government bonds and savings accounts offer lower returns, but they are typically considered safer investments as they provide fixed interest rate returns and have lower volatility.
Regarding the fear that high-risk investments will lead to low returns, it is crucial to understand that high risk does not necessarily mean low returns. High risk can potentially lead to high returns, but it also means there's a greater chance of losing the initial investment. It is the potential for both higher returns and the possibility of loss that defines a high-risk investment.