There is some degree of risk in every investment. Although it is reduced considerably in mutual fund investing. Do not let the specter of risk stop you from becoming a mutual fund investor. However, it be-hooves all investors to determine for themselves the degree of risk they are willing to accept in order to meet their objectives before making a purchase. Knowing of potential risks in advance will help you avoid situations in which you would not be comfortable. Understanding the risk levels of the various types o mutual funds at the outset will help you avoid the stress that might result from a thoughtless or a hasty purchase.

Let us now examine the risk levels of the various types of mutual funds.

Mutual funds considered moderate-risk investments may be found in at least the eight types categorized below.

The types of funds listed below have the potential for high gain, but all have high risk levels as well.

As you become a more experienced investor, you may want to examine other, more technical, measures to determine risk factors in your choice of funds.

Beta coefficient is a measure of the fund’s risk relative to the overall market. For example, a fund with a beta coefficient of 2.0 means that it is likely to move twice as fast as the general market – both up and down. High beta coefficients and high risk go hand in hand.

Alpha coefficient is a comparison of a fund’s risk (beta) to its performance. A positive alpha is good. For example, an alpha of 10.5 means that the fund manager earned an average of 10.5% more each year than might be expected, given the fund’s beta.

Interest rates and inflation rates are other factors that can be used to measure investment risks. For instance, when interest rates are going up, bond funds will usually be declining, and vice versa. The rate of inflation has a decided effect on funds that are sensitive to inflation factors; for example, funds that have large holdings in automaker stocks, real estate securities, and the like will be adversely affected by inflationary cycles.

R-Square factor is a measure of the fund’s risk as related to its degree of diversification.

The information is supplied here merely to acquaint you with the terminology in the event you should wish to delve more deeply into complex risk factors. The more common risk factors previously described are all you really need to know for now, and perhaps for years to come.