Some people like to visit the same places and travel the same routes every time they vacation. Others prefer exotic locales and unchartered pathways. By the same token, not all investors are equally adventurous. Investors that prefer high-risk investments have the potential for the greatest rewards but also have the potential for the greatest loss. Other low-risk investors prefer investments that offer greater safety at the expense of potentially higher rewards.
Many investors find they can minimize their risk through proper asset allocation.
The first invests the money at a guaranteed rate of 7 percent. Over the 15-year period, the first investment averages a 15 percent annual rate of return. The second investment averages 10 percent, the third averages 5 percent, and the fourth earns nothing. No single asset allocation formula is best for everyone. Yours will depend upon your investment time horizon, risk tolerance level, and income desires.