Today, more and more people are understanding the importance of making timely investments which is a very positive sign. This is mainly due to the uncertainties in our life such as sudden medical expenses, household expenses, cash crunch due to loss of employment, financial losses in business etc. If we plan for our future in advance and give sufficient time for our investments, then the chances of good asset creation in the future are very bright. An investment risk pyramid can be extremely useful for long term financial planning.
Understanding the Concept
An investment pyramid actually represents three levels of investment. At the bottom of the investment pyramid, low risk investment options are placed. In the middle portion of the pyramid, the investment options have a greater risk associated with them. However, these investment options can give you better financial returns than the extremely low risk ones. The third and the topmost portion consists of extremely high risk investment options. Though the profit from such investments can be unbelievable, you also stand at a high risk of losing your money due to volatile market conditions and overall nature of the economy. The low risk options which form the base of the pyramid can include bank accounts such as fixed deposits and savings accounts, government bonds and debt instruments, cash, pension funds, money market accounts, treasury bills, notes, and bills. The middle level of the investment pyramid consists of more risky investment options such as real estate investment, equities, mutual funds, direct stock investments, and some high income bonds. The most risky and high rewarding options such as futures, collectibles, penny, and speculative stocks are placed at the top of this pyramid. As we move up the pyramid, our risk goes on increasing and so does our reward. You should think of what return on investment you will get before taking any investment decision.
Preparing the Investment Portfolio
In the above paragraph, we have seen many investment options which you can explore. However, the truth is that every investment option is not the right one for all people. We should first understand our goals, priorities and financial aim in our life and then decide which investment would suit us. The risk taking ability of different individuals is different. So, if you are a youngster and have just started your professional career, many financial planners would advise you to be an aggressive investor and invest around seventy percent of the total invertible surplus in equities and mutual funds. The remaining thirty percent can be in debt instruments and in savings account for emergencies. The responsibilities are low at a young age and hence we should take advantage of this situation and create more value for ourselves. If you have goals such as higher education or marriage, lined up in the next six or seven years, then you should be more cautious and invest in medium risk investment options such as gold. Equity investments in high risk stocks can be detrimental to your near term goals if they go wrong. On the other hand, if you are a person who is on the verge of retirement and wants sufficient liquidity or cash in hand, then you should invest in extremely low risk options to safeguard your interests.
An investment risk pyramid can guide you well if you can study it properly and arrive at the right conclusions. Also, you should consult an expert in the financial planning field to get some good advice. Wealth creation is possible if you follow the instructions of a reputed investment adviser. By making smart investments today, you will be able to safeguard your future completely. All the best!
0 komentar:
Posting Komentar