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Understanding the Risk/Reward Relationship
All investments involve some level of investment risk. When selecting your investments, it’s important to understand the inherent level of risk involved within each investment type.
In this slide we see that stocks have experienced a wide range of returns over the years, posting a single year high of 53.99% and a low of -43.34%. This wide range of returns suggests a high level of volatility. On the other hand, bonds experienced a relatively narrow range of returns, suggesting lower volatility. However, in exchange for higher volatility, stocks delivered a average annual return of 10.2% - that’s 87% higher than the return provided by bonds.
When mapping out your investment plan, it is important to look at the risk/reward relationship. Making an informed decision to assume some risk may create the opportunity for greater potential reward, which may be necessary when pursuing longer-term goals, such as retirement. Conversely, making the decision to invest more conservatively may help to insure you meet your shorter-term goals, such as purchasing a new home.
Past performance is no guarantee of future results. This chart is for illustrative purposes only and does not represent the performance of any specific Cavanal Hill Fund.
1Stocks are represented by the Standard & Poor’s 500 Index, An unmanaged index generally representative of the U.S. Stock Market.
2Bonds are represented by the U.S. Long-Term Government Bond Index, an unmanaged index generally representative of the long-term U.S. bond market.
3Cash Equivalents are represented by the U.S. 30-Day Treasury Bill an unmanaged index generally representative of the rate of return on a savings investment.
Government bonds and T-bills are guaranteed by the U.S. Government and offer a fixed rate of return and principal value of held to maturity. Investors cannot invest directly in any index, although they can invest In the underlying securities.
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