Investing - Assessing The Risks Of The Different Types

By: lynter
Each of the many different categories of investing that you can choose from have their own risks! As such they will suit different people with different requirements. This article looks primarily at the risks of the main different types, without delving into technical analysis or professional opinion.

Note: You should always seek professional advice with regard to your investment strategies.

Categories And Their Risks

A: Investing Money In The Bank - Risk Low

Barring major economic melt-downs there is little risk with this approach. However the returns are poor to pathetic and this is not really a serious investment strategy

B: Investing in Managed Funds - Risk Low To Medium (conditional)

These funds are perhaps considered amongst the safest of investments. But this doesn't mean you can never lose money with managed funds, but generally because the funds are pooled together with those of other investors, there is a significant amount of buying power.

In addition, professionally managed funds have the benefit of providing access to an aggregated investment portfolio that offers numerous investing opportunities that individual investors would not normally be able to access.

Managed funds allow investors the ability to pick their preferred risk portfolio, diversify and spread their risk, and access international markets. As well, managed funds afford a level of convenience not found with more complex and hands-on investment vehicles.

C. Trading the Stock Market Yourself

You can either trade online or through a registered stock trader. The benefits and gains can be excellent, but the risks are self-evident. Unless you really know what you're doing, you can lose a substantial amount of money, particularly if you're using margin lending.

The best advice is to make sure you have a very comprehensive level of knowledge and try out your skills with some dummy trades before you put your money on the line.

D.Currency and Foreign Exchange (Forex) investing.

Similarly to stock market trading, significant amounts of knowledge and experience is needed in this area of investing to avoid substantial risk, but many people produce large monthly incomes working from home using this approach.

E. Real Estate

Even though real estate is regarded as "safe as houses", the areas of risk can include:

-unexpected legal issues relating to boundaries, easements, etc.
-building faults not picked up in the building inspection
-periods of rental vacancy, when you are left having to pay all your interest costs with no rent to offset it
-market adjustments that cause your capital value to decline (if you bought at the top of the market cycle)

Overall, there are risks involved in any investment and generally the higher the return, the higher the risk. The over-riding factor is to do careful due diligence and thoroughly learn your investment market and instrument before committing your money!
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