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Managing your investment risk

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Manage your risk—and even use it to your advantage—with the following strategies:

Use your asset mix. The mix of investments you have in your portfolio largely determines your position on the risk-return scale. Use the Investment personality questionnaire  to select an asset mix that reflects your risk tolerance, investment objectives and time to retirement.

Take advantage of diversification. Choose funds that invest in a wide range of securities, industries and even countries, to help lower the chances of market volatility.

Use dollar-cost averaging. Investing smaller amounts at regular intervals, rather than investing one lump sum, means you buy more stocks and bonds when values are low and fewer when values are high.

Shift your risk as you get near retirement. The closer you get to retirement, the less time your investments have to recover from any losses. It’s a good idea to gradually start shifting your investments to more conservative ones that will help you preserve your capital, generate income and gain increased liquidity.

Stagger the terms of guaranteed investments so they don’t all mature at the same time. This way, you won’t have to renew all investments during a period of lower interest rates, which could affect the value of those investments when they mature.

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Next lesson: A closer look at dollar-cost averaging