Regardless of your choice of investment types, you should learn about and understand the correlation of risk to the size and type of your investments. First, become familiar with the traditional risk levels of various types of asset groups ( stocksStocks are “equity investments” which means that individuals that own stock shares of a company actually own part of that company. , bondsA debt obligation of a company, the U.S. Treasury Department, or a city where the borrower receives funds (usually in increments of $1,000), makes semi-annual interest payments based on the coupon rate, and eventually repays the borrowed amount ($1,000) to the lender at the maturity date of the bond., real estate, etc.) and compare this data with classic expected returns in different economic climates.
Use this historical information in conjunction with the projected investment horizon for the future to identify your own comfort level and threat index. Use all the solid expert data you can find. For example, if gold values typically increase when the real estate market spirals downward, build this probability into your investment strategy.
Remember, there is no risk-free rate of return or investment. The key is to establish the risk, evaluate the potential return in light of this risk, and decide which investments suit your personality. Your journey into the investment world has now begun. Enjoy the ride!
|Investment||Risk Level||Potential Returns|
|Bank Certificates of Deposit||Very Low||Very Low|
|U.S. Treasury Bonds||Very Low||Low|
|Municipal Bonds||Low||Low – Medium|
|Corporate Bonds||Low – Medium||Medium|
|Real Estate||Low – Medium||Low – Medium|
|Stocks (Mutual Funds, ETFsExchange Traded Funds are a cross between mutual funds and stocks. ETFs are simply a portfolio of stocks or bonds or other investments that trade on a stock exchange just like a regular stock does. )||Medium||Medium – High|
|Precious Metals (Gold, Silver)||Medium – High||Medium – High|
|Leveraged ETFs||High||High – Very High|
|Options||High – Very High||Very High|
|Currency FX||Very High||Very High|