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Finance For Dummies

Finance For Dummies offers personal finance information on investing, retirement investing, finance, insurance, credit cards, loans and more. Personal finance education is our goal.

Monday, July 17, 2006

Risk Tolerance of Investments

In investing, if you desire high long-term performance you have to be willing to take on high levels of volatility because those are the asset classes that typically produce that type of return.

Risk can vary within asset classes and outside as well. Typically, different asset classes will have differing levels of risk.

Treasury bills and CDs historically have provided low long-term performance, however, that is because they possess very little risk. Small cap companies and international asset classes are higher risk investments so historically they will average higher returns than lower risk investments.

When you are developing a regular investment plan or a retirement investment plan risk tolerance and risk levels are an important place to start. You need to understandtheir correlation to asset classes and then determine if risks are worth it or not for you.

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