Everyone wants to earn a profit on their investments. But achieving a higher rate of return often means taking on more risk.
Of the three primary asset classes—money market, fixed income and equities—money market funds pose the least risk. In comparison, fixed income is considered a moderate risk, and equities carry the greatest risk for investors. Not surprisingly, money market investments generally offer the least amount of profit and equities have the potential for the greatest return.
So, how does one balance risk and reward? In order to determine your comfort level on the risk/return spectrum, you have to ask yourself some additional questions. What is your time horizon? What tradeoffs are you willing to make to try to maximize returns? What is your investment priority: increasing returns, reducing risk or a combination of both?