Understanding the Risk/Return Relationship

The first and most important step to beginning an investment plan is understanding your tolerance for risk. Some level of risk is an inherent factor with all types of investments. A simple relationship exists between risk and return – the higher the potential return, the higher the level of risk involved. You will encounter different types of security risk. Some investments are very volatile; their value shifts up and down quickly. Another type of potential risk stems from the quality of the investment, or the stability of the issuer in the case of bonds. Even shying away from risk and focusing on the lowest risk investments can present a problem. If your investments don't earn enough to keep pace with inflation, you are actually losing buying power. Your first task is to determine how much risk you are willing to take with your investment dollars. A Morgan Keegan financial advisor can help you reduce investment risk through careful selection of investments and planned diversification.