That's why it's important to put your retirement investments where they'll earn the highest long-term returns. The interest rate on U.S. treasuries is considered a risk free rate because the conventional wisdom is that the US government is unlikely to default on its bonds because of the strong economy. Quantified your risk by figuring out the ratio of return to variability Investigated the tenure of the fund managers. Compared the sales commissions, fees and overall expense ratios of the remaining funds on your list. One of the biggest mistakes you can make as an investor is to ignore the risk you are taking.
Every investment carries some type of risk.
The four types of investment risks are, Liquidity risk, Interest rate risk, Inflation risk and Financial risk. By recognizing that very risky investments, like futures, can cost you even more money than you originally put in, you might decide against them but at the same time you do not want to put all your eggs in one basket. A diversified portfolio is less risky than a portfolio that is concentrated in one or a few investments. Diversifying, spreading your money among a number of different types of investments lessens your risk because even if some of your holdings go down, others go up. On the other hand, a diversified portfolio is unlikely to outperform the market by a big margin for the same reason.