Since all investments involve some degree of risk, the question isn’t whether to take on risk, it’s how much risk to take. Here are some guidelines to help you decide which investments are right for you.

Stocks

• What they are A way to become a part owner of a company (a shareholder).
• What they offer Higher return potential through growth or price improvements.
• When they’re appropriate When you have several years to ride out price variations.
• Risks to consider Prices may vary with changing market, industry, or company conditions. Stocks have tended to be more volatile than bonds

Bonds

• What they are Loans you make to governments, corporations, or other entities.
• What they have offered Current income, with principal returned at maturity.
• When they’re appropriate When you want less risk than stocks and more income than cash investments.
• Risks to consider Credit quality may vary. Prices may rise when interest rates fall or fall when interest rates rise.

Cash investments

• What they are Short-term income securities.
• What they offer Current income, liquidity, and capital preservation.
• When they’re appropriate When you may need your money in the near future or when reducing risk is important.
• Risks to consider Lower return potential means cash investments may not always keep up with inflation, especially after taxes.

Diversified investments

• What they are A combination of stocks, bonds, and cash investments.
• What they offer The potential for reduced risk and blended return.
• When they’re appropriate Anytime, especially when market volatility is a concern.
• Risks to consider Risks and returns will vary, depending on how much you invest in stocks, bonds, and cash investments.

Many experts agree that it’s wise to spread your money across different types of securities. The following hypothetical portfolios are meant to serve as a guide, not as investment advice. As you can see, your age and personal views about risk may influence where you want to invest.

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