Guide to Risk and Asset Allocation
The Risk-Return Trade-Off
History has shown that in seeking higher long-term returns, you generally have to accept more risk of losses, especially in the short term.
Finding the right balance between risk and potential return can be challenging but it is a key to successful investing.
Risk-averse investors who seek to avoid losses may be unhappy years later if the purchasing power of their savings has been eroded by inflation. Aggressive investors may experience losses near the time they will need the invested money, or may be so unsettled by volatility that they change a generally sound investment plan.
Finding the right balance between risk and potential return can be challenging but it is a key to successful investing.
Next Step: Customizing risk to you.