Be aware of different types of risk. For many investors, "investment risk" strictly means the possibility of losing principal when the value of an investment drops. Consequently, to cut back on their risk in the face of a volatile market, they may sell off stocks and load up on certificates of deposit (CDs), bonds and other so-called safer investments. But each investment actually carries its own type of risk. For example, if you own CDs that pay a 2 percent return, and the inflation rate is 3 percent, you will lose purchasing power over time. And if you wanted to sell your bonds before they had matured, you'd have to sell them at a discount if the market interest rate had risen above the "coupon" rate of your bond because no one would pay you full price for them. Just be aware that no investment is "risk-free," and try to build a diversified portfolio that can lessen the impact of one specific type of risk.
By following these suggestions, you can go a long way toward making 2012 a good year in which to make progress toward your important financial goals. So plan ahead — and make the right moves.
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This article was submitted by Edward Jones financial adviser Michael Quinn, 25 Railroad Square, Suite 201, Haverhill. You can reach him at 978-372-4853. To comment on this column, visit hgazette.com.