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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.

Saturday, July 22, 2006

Risk Versus Return: Stocks, Bonds and Bills 1926-2000

Weighing risk and return there is always a trade-off. When you are putting together an investment plan and asset allocation for your portfolio the relationship between risk and return is essential.

When you consider the historical risk and return of small caps, large caps, intermediate government bonds, long-term government bonds and Treasury bills you will again notice that over this 75 year period the more risk you take on the more reward you can expect to receive. Smaller companies carry more risk and typically give higher returns while Treasury bills had little risk, but do not provide much return.

Considering these factors you need to base your portfolio asset allocation according to your ability to handle risk and your performance needs.

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