Final answer:
The Time-weighted rate of return is the preferred method of calculating the rate of return for comparing fund managers' performance, as it focuses solely on the managers' investment skills by removing the impact of external cash flows.
Step-by-step explanation:
In measuring the comparative performance of different fund managers, the preferred method of calculating rate of return is the Time-weighted rate of return. This method is preferred because it eliminates the effects of cash flows in and out of the fund, which can skew the performance results. The Time-weighted rate of return purely reflects the fund manager's ability to grow assets over a period, regardless of investor behavior, making it a fair comparison tool among different fund managers.
The tradeoff between return and risk is a significant aspect for any financial investor when deciding whether to invest conservatively or to take risks for potentially higher returns. These decisions are highly subjective and based on individual risk tolerance. Nonetheless, risk and return should be evaluated through the lens of time frames, especially when considering investments like stocks, bonds, or savings accounts.