Swings in the stock market and lower interest rates have caused a stir among investors and the investment community alike. Market volatility has caught everyone's attention, it seems, with skepticism marking upward trends and downward trends being met with worry. There's no dancing around the subject: The market is dynamic. An unavoidable, time-tested axiom of the investment world is that markets fluctuate. While it's good to be an informed investor, it's also imperative to know that investing is an ongoing educational experience. The key to soothing market jitters and making informed investment decisions lies in an understanding of inherent market risks.

Knowing the risks
Although you can't avoid risk while investing, you may be able to effectively manage it. Risk management starts with understanding the following types of risk:

• Market risk is what you accept when your money is invested in a potentially volatile market, such as the stock market. You are not guaranteed any return — as may be the case with safer investments — and the value of your investment may fluctuate on a daily basis.
  
  
• Interest-rate risk may cause the value of certain investments to rise or fall. Individual bonds and bond fund prices, for example, are directly affected by interest rate fluctuations. Usually, when interest rates rise, bond prices fall, and vice versa.
  
  
• Inflation risk may result in your money losing purchasing power over time. When inflation increases, for example, relatively safe and low-yielding investments may not be able to keep pace.

Honing your strategies
You'll need the proper tools for effective risk management. Diversification is probably the most effective strategy for risk management. A well-balanced portfolio may allow you to take advantage of several asset classes while minimizing risk. For example, while stocks have traditionally outpaced their counterparts, they are also considered the most volatile investment class.

Money market funds may provide a certain level of security, but may not keep pace with inflation. Bonds react to market conditions as do stocks, but are less volatile; however, the return potential of bonds is less than that of stocks. By themselves, each of these different classes of investments may not be for everyone. But they may have a place in a diversified portfolio in varying degrees.

Does your portfolio suit your profile?

	General shifts in the investment markets can happen for a variety of reasons, such as investor sentiment, supply and demand, and political and economic events.

Determining how to allocate funds among these various asset classes may improve your chances of reaching your financial goals. Before you can select appropriate investments for your portfolio, you need to determine your risk tolerance. Begin by reviewing your situation with respect to the following areas:

• Age. Generally, younger and middle-aged investors can withstand a higher degree of risk since they have more time to ride out market fluctuations. Older investors might want to ease up on aggressive growth vehicles and focus more on moderate growth. As you approach retirement, a conservative stance (not without some measure of growth to counter the effects of inflation, however) might be appropriate.
  
  
• Goals. What you ultimately need your investments for will determine the amount of risk you may be willing to accept. For example, someone investing specifically for retirement may be unwilling to take the same chances as someone investing for a luxury item.
  
  
• Psychology. Among all these factors, your mental attitude may be the most influential in determining your risk tolerance. For example, if you are unable to withstand volatility and the daily ups and downs of the stock market, it may be wise to include more stable investments in your portfolio.

A systematic strategy
A strategy that many investors use to soften the effects of volatile markets is called dollar cost averaging. They invest a fixed amount in a security at regular intervals, regardless of the price at which the security is trading. By investing regularly over time, one avoids the risk of investing everything at a peak price while reducing the risk of missing out entirely on potential growth opportunities.

Dollar cost averaging neither guarantees a profit nor ensures against a loss. Bear in mind that to dollar cost average, you must be economically able to continue purchases as scheduled through periods of high and low prices.

The above article is for general information only and is not intended to provide specific advice or recommendations for any individual. Consult your attorney, accountant, or financial or tax advisor with regard to your individual situation.

Mutual of America Life Insurance Company is a Registered Broker-Dealer.