Risk vs reward

Different kinds of investments mean putting your money at different levels of risk. Greater risk equals potentially greater reward. Here’s a simplified way of looking at risk versus reward:

Chart displaying increasing levels of risk and reward for different investment categories. From lowest risk and reward to highest – capital preservation, bonds, large cap stocks, mid cap stocks, small cap stocks and international stocks.

Investment categories

Mutual funds are typically made up of a mix of investment types. Here’s an overview:

Capital preservation – low risk, lower return funds that aim to protect the money you have with guaranteed income.

Bonds – funds that invest in the debt of a company or other entity, like the government. They are a lower-risk investment designed to pay periodic dividends that are typically higher than other options like CDs or money market accounts.

Large cap stocks – shares of a company with a market value of more than $5 billion. Well-known companies with growth potential. But lower risk than mid and small cap stocks.

Mid cap stocks – shares of a company with a market value between $1 billion and $5 billion. Familiar companies with growth potential. But higher risk than large cap stocks.

Small cap stocks – shares of a company with a market value under $1 billion. Lesser-known companies with the potential for large growth and large risk.

International investments – shares of companies in other countries. They typically come with the potential for high reward and high risk.

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Investing involves risk. You could lose money. And there is no guarantee that investment objectives will be achieved.

Asset allocation, rebalancing and diversification do not assure a profit or protect against loss in a down market.