Investor Education
3. Balancing Risk and Reward
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Balancing Risk and Reward
When selecting your investments, it's important to understand the inherent market risks involved within all financial investments. The previous charts assumed an annual return that did not change to illustrate the importance of compounding and rate of return. In real life there are always ups and downs and market risk.
The S&P 500 index, a good overall indicator of general equity market returns, has experienced negative returns in recent years due to sub-par market conditions. Yet, over the last 10- to 20-year periods the index has generated healthy annualized returns boosting the account value of many investors. While it is easy to become unsure of your investments during weakened markets, it is important to remember that investing for the long-term is your ally in combating market risk. The Lehman Aggregate Bond Index is a market value-weighted index that tracks the daily price, coupon, pay downs and total return performance of fixed-rate, publicly placed, dollar-denominated and nonconvertible, investment-grade debt issues with at least $100 million par amount outstanding and with at least one year to final maturity.
*Return rates may vary over time and the potential for higher rates of return involves a higher degree of risk to principal.
**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.
It is not possible to invest in any index. Past performance is no guarantee of future results.
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