Understanding Risk/Return Ratio

As you can see from the chart, choosing the right mutual fund should not depend entirely on the mutual fund's returns. Before investing, you should consider the risk profile of the mutual fund you plan to purchase.

Money Market Funds tends to carry the lowest risk and the lowest return.

Bond, Mortgage & Dividend Funds are less risky than growth funds, but returns tend to be lower.

Balanced Funds carry somewhat more risk than an income fund but there is potential for higher return.

Growth Funds carry the most risk but also have the potential for the highest return.

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Graph illustrating risk versus return