Slide 7 of 16
Investment risk can be managed, but it can’t be eliminated entirely. All investments carry some level of risk. And in general, the greater the risk an investment carries, the higher its potential return. This illustration may help you understand how this works. Along the horizontal axis is risk—the lowest level is on the left and the highest is on the right. Along the vertical axis is potential return—the lowest is at the bottom and the highest is on top. Different types of investments fall into different places on this graph. Keep in mind, however, that past performance does not guarantee future results. Actual results will vary. With the lowest risk—and the lowest potential return—are cash alternatives, such as certificates of deposit, which are generally considered to be relatively “safe“ investments. If you sell before a CD reaches maturity, you may be subject to penalties. Bank savings accounts and CDs are FDIC insured up to $250,000 per depositor per institution and generally provide a fixed rate of return. Traditional CDs offer a fixed rate of return, whereas both the principal and yield of investment securities will fluctuate with changes in market conditions. Further up on the graph are debt instruments, such as government bonds. Debt instruments offer slightly higher return, but at slightly higher risk. It’s important to remember that bond prices, including on government bonds, rise and fall daily. If a bond is held to maturity, a bond holder will receive the interest payments due plus original principal, barring default by the issuer. Return of principal is not guaranteed. Next are stock investments, which offer the potential for higher return, but they also have a higher risk. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost. At the top are speculative tools. Speculative tools are not appropriate for every investor. They carry a high level of risk and, when sold, may have little or no value. Consider working with an investment professional to better assess the risks associated with a speculative tool.
Past performance does not guarantee future results. Actual results will vary.