Investor Education
4. Risk and Return Spectrum of Asset Classes
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Risk and Return Spectrum of Asset Classes
Every investment brings an expected rate of return and an expected level of risk. Therefore, each investment requires an investor to make a risk and return decision. Investments with higher returns typically bring a higher degree of risk.
Individual stocks typically possess a higher degree of risk than most other security types. Of course, you may be rewarded with increased returns, but then again you might not. This investment dilemma is simply named: Risk versus Reward.
Increasing the number of securities held in an investor's portfolio can actually lower the risk of the portfolio. This is true with both stocks and bonds and is called diversification. It is important to assemble a portfolio of securities that when combined, provides an appropriate level of expected risk and expected return and is able to perform in a variety of market conditions.
*The value of equity investments, such as stocks, are more volatile than investments in fixed income securities, such as bonds. Bond investments tend to react to change in interest rates.
**Illustrations shown and returns do not reflect the results or performance of any particular investment or mutual fund.
***The funds do not offer tax advice. Since individual tax situations vary, this strategy may not be suitable for all investors. Please consult your tax advisor to see how this information pertains to you.
****Shares of a mutual fund are not deposits of, or obligations of, or guaranteed by, any bank or its affiliates, nor are they federally insured by the FDIC. Investments in the funds involve investment risk, including the possible loss of principal.
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