Page 29 - Southern Exposure - January '22

Southern Exposure, Page 29
FinanCial FoCus
What Should You Know About Investment Risk?
When you invest, you incur risk – there’s no avoiding of years, and even decades, you can reduce the likelihood
it. But the concept of “risk” may be more expansive than
you realized. And by understanding the different types of
investment risk and how these risks can be addressed, you
can improve your skills as an investor. Great Depression, U.S. stocks have averaged 9.59%
The most common perception of investment risk is annual returns, according to Morningstar Direct, an
simply the risk of losing money. When you invest in
stocks and stock-based vehicles, such as mutual funds, can’t guarantee future results.
there are no guarantees that your principal – your initial
investment amount – will be preserved. Generally to consider when making your investment decisions. But
speaking, if you hold stocks or mutual funds over a period
By Sally Sima Stahl
your money into other types
of sustaining losses that could send your investments’ of investments. Consider
value to zero. Hopefully, the value of your investments bonds, for example. When
will rise over time. And it’s worth noting that, since the you purchase a bond, you
typically receive regular
interest payments and
investment research service. However, past performance you get back your initial
investment when the bond
In any case, this type of risk is real, and it’s a factor matures, provided the
issuer doesn’t default. But
you can’t avoid all risk by avoiding stocks and putting if interest rates go up and
you want to sell your bond
before it matures, you’ll have to offer it at a “discount,”
because no one will pay the full price for your bond when
they can buy new ones at a higher rate.
You can help manage this type of interest rate risk
by owning a variety of bonds with different maturities.
When interest rates are rising, you can reinvest your short-
term bonds at the new, higher rates. And in a falling-rate
environment, you can still benefit from your longer-term
bonds, which typically pay higher interest rates.
Foreign or international investments also contain
specific risks. When you purchase foreign stocks, you’ll
find that fluctuations in the value of currencies relative to
the U.S. dollar can affect your returns. Also, international
investments may carry political risk, since some foreign
governments and political systems may change in ways
that work against businesses in those countries. To contain
these types of risk, you’ll want to maintain an appropriate
allocation of international holdings and diversify across
regions.
Ultimately, your most broad-based defense against all
types of risk is to build a diversified portfolio containing
U.S. stocks, international stocks, corporate bonds, mutual
funds, government securities and other investments.
Diversification works because it helps reduce the impact
that market volatility can have on your portfolio if you only
own one type of asset, such as domestic stocks. (However,
diversification can’t guarantee profits or protect against all
losses.) And you’ll also want your portfolio to reflect your
individual tolerance for risk.
By being aware of the different types of risk, and taking
steps to mitigate them, you can create a strategy that offers
the potential to help you achieve your important goals,
such as a comfortable retirement. And by doing so, you’ll
avoid the greatest risk of all: not investing for your future.
This article was written by Edward Jones for use by
your local Edward Jones Financial Advisor, Edward Jones,
Member SIPC.
Edward Jones is a licensed insurance producer in
all states and Washington, D.C., through Edward D.
Jones & Co., L.P., and in California, New Mexico and
Massachusetts through Edward Jones Insurance Agency
of California, L.L.C.; Edward Jones Insurance Agency of
New Mexico, L.L.C.; and Edward Jones Insurance Agency
of Massachusetts, L.L.C.
Edward Jones, its employees and financial advisors
cannot provide tax advice. You should consult your
qualified tax advisor regarding your situation.
Contact us at (561) 748-7600, Sally Sima Stahl, AAMS,
1851 W. Indiantown Road, Ste. 106, Jupiter, FL 33458.