If you desire high long-term returns, you must be willing to accept the high levels of volatility associated with the types of asset classes that produce such returns. There is a wide spectrum of risk levels among asset classes. Risk is defined as fluctuations in returns from one period to the next. Lower-risk investments, such as cash alternatives (for example, Treasury bills or certificates of deposit), have averaged modest long-term historical returns. Higher-risk investments, such as large, small, and international stocks, have averaged higher returns historically but with more volatility or fluctuations in value. One of the first steps in developing an investment plan is to determine which is most important: return stability or long-term investment performance. Government bonds and Treasury bills are guaranteed by the full faith and credit of the U.S. government as to the timely payment of principal and interest, while stocks and corporate bonds are not guaranteed. Certificates of...
