Investing 101 - Risks and Types of Investment Products
Last time we mentioned the reasons why investing outweighs saving in the long run, so let us proceed to the definition of risk and types of investment products today!
While risk comes along in all types of investment, your return is definitely relied and dependent on risk. In general, the larger the expected return, the larger the investment risk, vice versa. We investors would then have to carefully select the plan that truly suits our preferences. Speaking of that, HSBC has provided a checklist for you to benchmark against with, if you would like to analyse your risk tolerance. It can be further divided into 6 main categories, namely “secure”, “very cautious”, “cautious”, “balanced”, “adventurous” and “speculative”. “Secure” type of person has 0 tolerance for investment loss, so investment-related products might not be suitable for consideration. “Balanced” people are willing to take a moderate level to risk in exchange for a moderate level of return. The most adventurous “speculative” investors are striving for the maximum return, thus they are comfortable with taking maximized risk. Apart from that, this checklist also categorised 5 product risk levels, for us to compare and contrast different investment options.
Once you are recognised with your own risk tolerance, feel free to customize your options according to your financial goals. While the list of available investment products in the market can go on forever, there are some major categories for us to follow - stocks, bonds, mutual funds, real estates etc. Stocks is always a comparatively hotter pick, loosely translated as investors holding a fractional share of a listed company. Bonds is another option that is widely adopted by people worldwide, usually issued by the government, financial institutions or companies to investors. These entities would promise to pay investors a specified amount of interest for a specified time period, with principal to be repaid when the bond matures.
On the other hand, purchasing mutual funds eases our investment process, where a fund manager would collect investors’ capital to invest in numerous securities e.g. stocks and bonds. Last but not least, investing in real estate indicates hopes of gaining return from your investments in the mentioned item e.g. shopping malls.
Now that you are equipped with the knowledge of the hottest investment options, next time we are going to share tips for amateur investors. Keep in touch with us and follow our social media, make sure you are staying in the loop!