Risk vs. Reward

In investing, risk and reward are directly connected. Higher potential returns come with greater uncertainty and risk. Promises of high returns with no risk should always be treated with skepticism.

Volatility measures how much and how quickly an investment’s price moves over time.

• Low Volatility Assets (such as cash or bonds) change little in value. They feel stable but often grow slowly and may lose purchasing power.
• High Volatility Assets (such as stocks) experience larger price swings. Values may drop very quickly in the short term and rise significantly over longer periods.

Rethinking Risk: For diversified investments like broad index funds, the more common risk is needing the money during a temporary market downturn. If you are forced to sell when prices go down, short-term losses can become permanent. Therefore, risks should depend on how long you can leave your money invested:

• Short-Term Goals (0–3 Years): Use low-risk options such as savings accounts. This money must be available when needed.
• Long-Term Goals (10+ Years): Higher-risk investments are appropriate. Markets have historically recovered from downturns over long periods.