- A higher degree of risk for speculative junk bonds that promise high yields but may wind up being worthless
- Value shrinking when interest rates rise
- Smaller potential for returns than other investments, such as stocks
Funds
A mutual fund can be an excellent source of portfolio diversification. It allows investors to pool money into a professionally managed fund that often spreads the money across various assets, including stocks, bonds, money market funds, and other potential sources of income.
The pros of mutual funds include:
- Instant diversification
- Professional management
- The ability to set it and forget it
Cons include:
- Fees, which can be significant
- A lack of control over your money
- Difficulty in assessing potential funds since past performance is no guarantee of future returns
Stocks
One of the best ways to make a small fortune in the stock market is to start with a large fortune and a short-term mentality. As the saying goes, it's better to have time in the market than to try to time the market. As a general rule, you shouldn't consider buying individual stocks unless you plan to spend considerable time researching and evaluating them.