Investing can have rewards, if you can accept the risks

More Americans than ever are investing in the stock market and other investment vehicles—these investments can lead to big rewards, especially when they’re part of a balanced and diversified portfolio. However, investments also have a certain measure of risk.

Your investment portfolio should be tailored to your situation—and how much risk you are willing to take and can afford on both short- and long-term investments.

Investing involves risk, including loss of principal. When redeemed, an investment may be worth more or less than the original investment amount.

Creating an investment portfolio

It is almost universally accepted that any investment portfolio should include a mix of investments from various asset classes, such as:

  • Stocks
  • Bonds
  • Mutual funds
  • IRAs
  • Other investment vehicles

A portfolio should be balanced, meaning it should contain investments with a varying level of risk. This will help minimize the overall impact to the portfolio if one of the portfolio holdings declines significantly.

Spreading your investments over multiple asset classes helps reduce the risk of losing your entire investment.

Investing in stocks

Stocks are shares of ownership in a company. As a stockholder, you share in the profits and growth of the company through dividends that are paid to you as well as through increases in the stock’s value.

The main reason for investing in stocks is for the capital appreciation and growth. While past performance is no guarantee of future growth, stocks have historically provided a higher average rate of return than other investments. However, stocks also tend to have more volatility than bonds or cash investments, and you need to be patient and prepared to hold onto them for the long term.

Many factors can affect the value of a stock. It may help you to make sound investment decisions if you do your research and work with a Financial Advisor.

Investing in bonds

Although bonds may not be as glamorous as stocks or commodities, they play a significant role in most investment portfolios.

When you buy a bond, you are essentially loaning money to a bond issuer. They (often government agencies or corporations) then use the cash to finance a venture or fund a program. In return for your investment, you receive interest payments at regular intervals and are paid the bond’s full face value at a specified maturity date.

While some bonds are conservative, lower risk investments, some are not. As with any investment, they all carry some degree of risk. These risks include inflation, or the possibility that the issuer will be unable to make its interest payments or pay the face value at maturity. To help minimize this risk, compare the strength of companies or bonds through a ratings service such as Moody’s, Standard & Poor’s, A.M. Best, or Fitch.

In general, the bond market is volatile, and fixed income securities carry interest rate risk. As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.

Investing in mutual funds

A mutual fund is essentially a portfolio unto itself; it is an open-ended investment consisting of a usually diverse group of stocks bought and sold by an investment company on behalf of its shareholders. By investing in a mutual fund, you’ll own a piece of the total portfolio, which could be comprised of anywhere from a few dozen to hundreds of stocks.

The benefits of mutual funds are:

  • Instant diversification
  • Professional money management
  • Small investment amounts
  • Liquidity

Of course, mutual funds are not guaranteed investments. The price of mutual fund shares can change daily, and you'll receive the current value of your shares when you sell, which may be more or less than the amount you paid to purchase them.

Investors should consider the investment objectives, risks, charges, and expenses of the fund carefully before investing. Please carefully read the prospectus, which contains this and other information about the fund. You can obtain a prospectus from your Financial Professional.

Additional investment options

If you want to diversify your investment portfolio even further, there are other investments you may want to investigate:

  • Precious metals
  • Options
  • Futures
  • Real estate investment trusts (REITs)

Investing in precious metals, options, futures, and Real estate investment trusts (REITS) are not suitable for all investors and may be speculative and volatile. Option investors should obtain a copy of the Options Disclosure Document and prospectus from their Financial Professional prior to investing.

Setting investment goals

Regardless of how or where you choose to invest your money, the most important aspects of investing are to first define your dreams for the future and set investment goals that can help make those dreams come true. Then, invest consistently over the long term.

Start by making a list of your short- and long-term goals. Be as specific as possible. For example, instead of saying “retirement,” state exactly when you want to retire. Then you can determine how much money you’ll need to save and which investments will best support your goals.

Some common goals include:

  • Retirement
  • Paying for college
  • A new home or car
  • A dream vacation

Start by making your list now. Then, you can learn more about another investment vehicle known as annuities.

Investing involves risk, including loss of principal. When redeemed, an investment may be worth more or less than the original investment amount.

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