Every investment has certain degree of risk, and investors need to understand the levels of risk or volatility associated with their investments. Risk doesn't always mean potential loss of capital. Inflation, for example, is a risk that erodes the "value" of your capital and hence, your buying power. What may be thought of as a safe and conservative investment, such as a government bond or a Treasury bill, actually holds a hidden element of risk to your long-term purchasing power. Every portfolio needs some long-term, growth-generating investments to counter-balance the negative effects of inflation. 

Diversification

Because of market fluctuations, the most popular strategy for maximum potential performance and minimum risk, is diversification. A portfolio will perform best over time if it contains a variety of investments. Diversification can be achieved by investing in a mutual fund which is comprised of many and different assets, or by buying shares of different types of mutual funds, or by purchasing shares of a balanced fund.

Since no one can predict the future or time the market, to buy at the lowest price and sell at the highest is easier said than done. However, there is a simple way to prevent you from doing the opposite, which is to buy at the highest price and sell at the lowest. When the value of your investment declines, due to fluctuating market conditions, don't sell your securities, because over time, their value will increase again. Be patient and let your investments work for you.

Peso cost averaging

To obtain the best results, you should regard mutual funds as long-term investment vehicles, which means they should be held for seven years or more. The securities market in which your mutual funds invest, tend to rise and fall over the short-term, as will the value of your investment. Your ability to withstand short-term volatility, especially on the downside, will generally result in greater results over the long-term.

When choosing a fund manager for your hard-earned savings, another important strategy is to choose one that offers a complete family of funds. This way, you will have a lifetime of flexibility as your investment needs change over time. Investing in a family of funds allows you to transfer your investment, or part thereof, from one fund to another, or from one fund to several others, free of charge.