Tips and Tools For Financial Success - Newton Free Library
Tips and Tools For Financial Success - Newton Free Library
Tips and Tools For Financial Success - Newton Free Library
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Risks that you can predict will occur—though not when they will happen—are known as systematic risks.<br />
These risks are part <strong>and</strong> parcel of investing in the financial markets. While learning to accept risk as<br />
a normal part of investing is necessary to your success as an investor, there are ways to minimize the<br />
impact of systematic risks on your portfolio.<br />
Allocating your portfolio across a broad spectrum of asset classes is a primary way to reduce systematic<br />
risk. <strong>For</strong> instance, you might invest a percentage of your portfolio in bonds <strong>and</strong> bond funds, another<br />
percentage in a variety of stock <strong>and</strong> stock mutual funds, including international stock as well as small-,<br />
medium-, <strong>and</strong> large-company domestic stock, <strong>and</strong> another percentage in cash equivalents, such as CDs<br />
<strong>and</strong> U.S. Treasury bills. Some investors also include real estate, precious metals, <strong>and</strong> other products in<br />
their portfolios, often by choosing funds that invest in those products.<br />
There are also certain market conditions when you may be able to find competitive investment returns<br />
with comparatively less risk. <strong>For</strong> instance, when interest rates rise, bonds may offer returns that are on<br />
par with some stock returns but with less risk to principal. That’s the case, in part, because they are less<br />
volatile.<br />
One of the biggest risks you may fall prey to, however, is trying to avoid risk altogether. If you invest very<br />
conservatively or don’t invest at all because you’re afraid of losing your principal, you become vulnerable<br />
to inflation, which can erode the value of your interest-bearing savings <strong>and</strong> investments over the longterm.<br />
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