It is just not enough to decide to get started on online trading it is highly essential to have the right mix of investments to spread out the risk factor. So here we shall see what is needed from our part as investors to ensure that there is a right investment mix. Online trading and right investment mix ensure good returns with least risk for you.
Determining the right mix of investments
At the onset one has to have a clear understanding of the options available; next is to group the investments that have similar characteristics into categories which enable us to gauge their expected performance. Now let us look how each of the investment categories help you to draw up a plan with the right mix for optimum returns and least risk.
Stocks relate to investment in the form of ownership in a company where the value of the stock keeps fluctuating depending on the performance of the company and other market conditions. Though they can be expected to fetch you high returns they are coupled with high risk too.
Cash kept in banks in savings and current accounts and other money market funds have very low returns but they are also low risk investments and your money is safe here.
Bonds are somewhere in between stocks and cash; it is like a loan given to any organization which pays interest. This category of investment offers medium expected returns with a medium amount of risk.
Other investments can be made in various types like commodities, futures, real estate, etc. These can be helpful certain times when the situation is right but can also cause trouble when not utilised properly.
Ability to invest and need for returns
These two are major factors to be considered while planning on a proper mix in investments so that you achieve your target. You will now have to decide what portion of your funds you would like to put into the above main investments, stocks, bonds, cash.
Calculating your risk appetite
If your need for returns is low you do well to stick to investments like cash and bonds that are low risk.
If you are young and have a high risk appetite then you can venture into stocks that generally fetch higher returns.
And there is another factor, risk tolerance, which also has to be taken into account while planning your investment mix. Risk tolerance is related to your own comfort level with risk. While some of us are ok with high risks there are others who do not like taking such big risks. Depending on this factor too you have to plan your investment portfolio.
From the above you can see that the younger you are the more chances you wish to invest more in the stock market which promises long term growth and if things don’t go as per plan one still has a lot of time to rectify this lapse.
But those who are close to retirement would be a bit wary of the stock market though they may still put a little of their savings here.
There is actually no hard and fast rule as to what the right mix of investments is; all depends upon the risk appetite, age, and return need of the investor.
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