Understanding the types of risk is the first step to selecting investments for your retirement portfolio.
Stocks and bonds carry three major risks. Let’s take a brief look at them.
Market risk: The daily rise and fall of stock and bond values. Sometimes the day-to-day changes are small; at other times, they can be dramatic.
Interest-rate risk: Interest rates influence the cost of borrowing money for companies and governments. Fluctuations in interest rates can pose a risk to the value of the bonds issued by these groups.
Inflation risk: The cost of goods and services rises over time. Inflation decreases the purchasing power you’d get if you cashed in your investment returns. If the rate of inflation exceeds your investment returns, your money is losing value.
See Understanding risk for a more detailed discussion.
Risk is a natural part of investing. Here’s how to manage it to your advantage.
Generally speaking, the more risk you take on, the greater the potential for higher returns. Risk and return go hand-in-hand — you can’t have one without the other.
Your challenge is to find the right balance between investments risky enough to produce sufficient returns, and investments conservative enough to preserve your assets — and your peace of mind. Your choice of investments should reflect that balance.
See how putting your money in different types of investments can reduce investment risk.
Use our sample portfolios as a guide to build your investment strategy.
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Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
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