When you invest, you incur risk. But by understanding the different aspects of investment risk, you can become a better investor.
First, when you invest in stocks or stock-based mutual funds, you risk losing principal. But you can potentially reduce this risk by holding your stocks for a period of years – or even decades.
Your other investments also carry risk. For example, bonds are subject to interest rate risk – that is, when interest rates rise, the value of your existing bonds will likely drop.
And foreign investments are subject to currency and political risks.
You can mitigate these risks by using different strategies, but your overall best defense is to diversify your portfolio among U.S. stocks, international stocks, bonds, mutual funds, government securities and other investments. While diversification can’t guarantee profits or protect against all losses, it can reduce the impact of market volatility on your portfolio.
Using proper diversification and other techniques, such as holding investments for the long term, can help you avoid the greatest risk of all – not investing for your future.
This content was provided by Edward Jones for use by Daniel Pellerin, your Edward Jones financial advisor at 189 East Main Street Suite G, in Newport, (802) 334-6261.