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In general, what is the least risky type of mutual fund?

All mutual funds, like any other investments, carry some risk.

Investors often think of risk in terms of the chance that they might lose some or all of their original principal investment. That is something to be especially concerned about if you are investing for a short period, and need your money back for a particular purpose. If you are investing for the long-term; for example, your retirement, there is another key risk of which you need to be aware: that the purchasing power of your money may be eroded by inflation. If you want to increase your purchasing power, you need an investment that generates a return which will more than offset the inflation rate. If merely protecting your principal is your goal, a money market mutual fund is a place to consider putting your money. Those funds invest in securities like Government of Canada treasury bills. Your principal would be preserved, and the return may be enough to match the inflation rate. Don't expect your purchasing power to increase. It would probably stay about even with inflation. Money market funds are an example of cash, which is one of the three main investment asset classes. The other two asset classes are equities and fixed-income. Mutual funds that invest in common stock are a type of equity. Equities, historically, have offered investors the highest returns over the long term. They have done the best job of adding to investors' purchasing power. But stocks, particularly in the short-term, also bring the greatest risk of reducing part of your capital. That's because stock prices move up and down much more than other assets. So stocks and other equities should be considered as a long-term investment. A bond mutual fund, investing in government or corporate bonds, is an example of a fixed-income fund. In terms of risk and return, bond mutual funds generally fall between money market and equity mutual funds. The long-term return on bond funds has been greater than money market funds, but less than equity funds. It is possible to lose money on a bond fund, since an increase in interest rates reduces the value of the bonds held by that mutual fund. The amount of risk with a bond fund varies, depending on the types of bonds in the particular fund. One of the ways investors can balance receiving a return to meet their needs while limiting their risk is to have a diversified portfolio which mixes cash, fixed-income and equity investments. You can do that with mutual funds by holding one or more funds which invest in each of those three main asset types. Or, to keep it simple, you could buy a balanced mutual fund which has a combination of cash, fixed-income and equities. Before making any investment decisions, consider seeking professional advice. The amount and type of risk associated with particular investments, even those which may appear to be very similar, can vary greatly. The most appropriate investment for you will depend on issues such as why you are investing, your risk tolerance and your personal circumstances.