Money Minute
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How much risk is too much?
How much risk is too much?

Risk is a key component to consider when making investment decisions. Taking on too much risk can expose you to extreme volatility, while too little risk may not give you the returns you want. Find out how to determine your own comfort level for accepting risks.

When investing, it's important to consider your savings goals and personal tolerance for risk. At the end of the day, the marketplace has an investment for everyone.

Generally speaking, the more risk you are willing to take, the greater the potential for higher returns. And the opposite also holds true, the lower the risk, the lower the potential for returns.

For example, basic savings accounts and CDs are generally considered low risk investments because it is unlikely that you will lose a significant amount of your principle value. However because the risk is low, the returns are historically low as well.

Stocks on the other hand, are considered higher risk options because the value of your investment may fluctuate more frequently and at more dramatic levels. But when you take on this increased risk, you also have a higher potential for making more money on your investment.

At the end of the day, the marketplace has an investment for everyone. Consider your particular comfort levels as you take the time to find the right balance of risk and potential rewards for your investments.

Principal value and investment returns will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. A periodic investment plan does not assure a profit or protect against loss in declining markets. Please read a mutual fund’s prospectus carefully before investing.

Past performance does not guarantee future results. © Ariel Investments, LLC. The mutual funds offered by Ariel Investment Trust are distributed by Ariel Distributors, LLC. Use of this website is subject to our Terms & Conditions of use. Each of the investment products, mutual funds or services referred to in this site may be offered only to persons in the United States. This web site should not be considered a solicitation or offering of any investment products, funds or services to investors outside the United States. Original illustrations © Omar Rayyan 2007.