According to risk profile and expectation of returns there are numerous options to select for an investor. Different risk reward trade off is represented by different investments. Low risk investments provide assured returns but they are lower and high risk investments offer the greater returns with high risk profile. However, the investor’s risk tolerance plays major role in selecting the most suitable investment.
Types of investment options:
There are some well known investment options and their basic dangers and benefits.
- Cash and fixed interest: These are low risk investments or conservative or low return investments. These offer fixed returns but the shortfall is their exposure to inflation. That returns can be abolished owing to the abrasive impact of inflation on money. You may get higher returns by investing in money market funds.
- Equities or shares: Opportunities are provided by stock market to enjoy high returns. But in this high risk are also involved. Long term boundaries can reduce the risk, the stock market is changeable in the short term. Investors can invest in individual companies or in various companies by equity mutual-funds, that are managed by professionals and an investor no need to conduct research.
- Bonds: Bond denotes money that an investor lends to a bond issuer. The issuer can be corporate bodies or government. There is low risk in government bonds with an assured returns and regular income. Corporate bonds provide higher return as well as higher risk.
Investment portfolio diversification include the main asset classes like investing in bank deposits and bonds shares and property , can give a better risk-returns profile to investor.