Risks and Rewards

Because mutual funds typically hold a large number of securities, there is generally less risk associated with investing in mutual funds than with investing in a single stock or bond. However, there are still a number of risks that you should consider before investing:

You could lose money
Every mutual fund prospectus will highlight this point. It's the most obvious and feared risk of investing. There are, however, many strategies for managing this risk, particularly over the long term.
Your money may lose buying power
This risk is also known as inflation risk; as prices increase, your investments must increase in value, at least at the same pace, or you'll lose purchasing power.
Your investment may rise and fall in value
Almost all investments have the potential to gain or lose value. This is known as market risk. Seasoned investors tend to ignore the relatively small price movements in their investments, preferring to try and capture the more significant fluctuations they can better anticipate. If you invest for longer periods of time, market risk may become less dangerous to you. Market risk, however, can place you at a significant disadvantage if you are forced to sell at a time when prices are down.
Foreign exchange, or currency risk
If you invest overseas, the exchange rate between the U.S. dollar and any foreign currency adds an extra layer of risk to your investment. The stock or bond you buy may go up, but the exchange rate may go down so far that it wipes out your gain.

AARP Financial Inc. does not provide tax advice. Please consult a tax advisor for information pertaining to your particular situation.

The information and content provided herein is general in nature and is for informational purposes only. It is not intended, and should not be construed, as a specific recommendation, or legal, tax or investment advice, or a legal opinion. Individuals should contact their own professional tax or investment advisors or other professionals to help answer questions about specific situations or needs prior to taking any action plan based on this information.

The Financial Advisors are investment adviser representatives of AARP Financial Inc., an investment adviser.

While AARP endorses the services provided by AARP Financial Inc., AARP does not offer financial products or services itself and cannot recommend that you or any specific individual should purchase any particular product or service. AARP Financial Inc. is an investment adviser and a subsidiary of AARP.