Investing is a risky process. When you invest, you have to keep the degree of risk you are taking on in the back of your mind. More risk means an increased possibility that you will lose money. If you invest high risk, there’s a good possibility you’ll lose money whereas if you invest in a low risk investment, you will be less likely to lose money. Your goal should be to make as money money as you can with as little risk as possible.

Some investments have more risk than others. For example, let’s say you have an extra $10,000 that you want to invest. You have two friends that want to start a business and each need $10,000 in start up costs. One friend is very reliable and already has a successful business, but is expanding. Even if they fail, you are confident they will pay you back. You have low risk.

Your other friend also needs $10,000 for this new idea they have. They are really excited because they feel they can earn a lot of money. Unfortunately, they almost never pay you back when they borrow yours or anyone else’s money. You don’t feel very well giving your money to them.

You have a lot more risk in the second friend, but their idea has lot of potential to make a lot more money. They also said they’d share half the profits with you. The first friend has a run-of-the-mill idea and promises to pay you back with 8% interest.

You have a lot more risk in the second friend, but you will make a lot more money with them. You have almost no risk with the first friend, but you’re only going to make 8%, no matter how well the business does. You have to decide if you are willing to take the risk on more profit.

The same goes with stocks and bonds. Stocks are more risky, but you could earn a lot more. Bonds are less likely to earn more money, but you’ll at least get back what you put in. The same goes with stock and bond mutual funds.

A bond mutual fund is better for conservative investors who are nearing retirement. They don’t want to risk too much money because they know they will need to rely on that money in the near future. Bonds are a better bet because they are much less risky and less likely to lose money.

While your young, invest more in stocks. As you get older you can invest more and more in conservative bonds. This method will allow you to make the most without worrying about losing it.

Related posts:

1. Explain Stocks, Bonds, and Mutual Funds
2. What are Stocks, Bonds, and Mutual Funds
3. Mutual Funds in Canada
4. Mutual Funds
5. How to Invest in International Mutual Funds

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