What investments are in your portfolio? Are you satisfied
with their performance? Are they meeting your income needs and
helping you achieve your objectives? Generally, there are three
broad categories of investments.
Equities
Investments in which you own a share of a company (i.e.,
common corporate stocks, corporate stock funds).
Attributes:
Potential for growth in value over time; may help fight inflation.
Price swings are generally wider and more unpredictable
than fixed-income investments.
May be better for reaching longer-term goals.
Generally considered moderately aggressive.
Fixed-income investments
You loan funds to a corporation or government entity and
receive a fixed payback as your return (i.e., corporate and
government bonds, bond mutual funds).
Attributes:
Typically steady income and lower volatility than
stocks; principal may be guaranteed if held to maturity.
Over time, generally less effective against inflation
than equities.
May be better for reaching shorter-term goals.
Generally considered conservative to moderate.
Cash and stable-value investments
Short-term investments and cash equivalents that can
easily be turned into cash. These include U.S. Treasury bills,
certificates of deposit and money market funds. Stable-value
investments include insurance company fixed annuities, guaranteed
investment contracts and stable-value mutual funds.
Attributes:
Minimal risk of losing invested money.
Among the least volatile of investments over time.
Typically lower returns than bonds.
Considered conservative to moderate.
One of the most reliable methods of protecting your money
is by diversifying your portfolio. Diversification is based on the
likelihood that the market values of some investments will go up
while the market values of others go down. It may help reduce the
overall risk of your portfolio but may not protect against the
possibility of losing some or all of the money invested.
When you diversify, you're less likely to be hurt by the
poor performance of a single investment or be affected by factors
like interest rates, inflation and industry cycles.
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