The risk scale, i.e. volatility of return, for general investment categories sorts investments from 1, least risk, to 8, highest risk.
- Bank Account
- Cash or Money Market Funds
- Debt Investments: Bonds and Bond Funds
- Common Stocks and Shares (Equities) and Equity Funds
- Real Estate
- Collectibles and Commodities ( stamps, art, gold, diamonds, oil etc)
Categories 1 and 2 usually have returns that are near to the rate of inflation. In other words, not a good return on your investment in the long term, though they are low risk.
Category 3 usually has better returns than 1 and 2 and in most cases Bonds provide a fairly safe investment. However, there is a wide range of risk within this category; from Junk Bonds with very high risk to Treasury Bonds with lowest risk.
Category 4 is where most investment is based. In general, mixed, managed, well balanced stock markets funds are safer than individual stocks because of diversification and professional management. The professional management allows the investor to concentrate more on family, job etc. instead of having to spend large amounts of time managing a portfolio of individual stocks.
Category 5, real estate, is a very localised investment fraught with more “negatives” than most people realise and not easy to sell at short notice i.e. illiquid. However, it can be – if bought, managed and sold correctly – a great source of wealth.
Categories 6, 7 and 8 should only be considered by experts in the relative fields. The risk is too high for investors without specialist knowledge.
Before making any investment decisions, be sure of your personal risk rating, diversify your portfolio and get advice from a Licensed Independent Financial Adviser. Call Pauline Bowden on 616 743 108 or email Pauline.firstname.lastname@example.org for a free, personal, confidential consultation.