Each of us, have a variety of investment choices, and/ or, options, to choose from, when we decide, the best way, to invest our funds! Each of these has both, risks, and rewards, and based on a combination of one’s personal comfort zone, needs, goals, priorities, plans (short – term, and longer – term), and personal financial situation, a decision should be made, on a personal level, because, this is, anything, but, a, one – size – fits – all, situation! One must learn, as much as possible, and proceed, with a clear – mind, focus, and create his personal strategy, With that in mind, this article will attempt to, briefly, consider, examine, review, and discuss, the risks/ rewards, balance, of 5 examples.
1. Stocks: Should you invest in the stock market, and, if so, how should you make the decision, as to your approach! How much risk, are you willing, to assume, and, can you afford? If you take a risky approach, while the potential, may be higher, but the potential, to lose, is higher, also! Should you buy blue – chips, small – cap, large – cap, dividend – focused, individual, stocks, and/ or, mutual funds? What are you seeking, to achieve, and what is your willingness, to accept risk? Never invest until you know, your personal objectives!
2. Bonds – government versus corporate: While, a stock represents, partial ownership, in a corporation, a bond, is a debt obligation! While, bonds may have lower risks, in many cases, that does not mean, they are risk – free. Between the time, one purchases a bond, and it comes due, the price may, and often, does, fluctuate, and, thus, if one needs liquidity, that may be a factor! In addition, it’s important to realize, bond interest rates, depend on many factors, and, that rate is usually, dependent on other rates. Because government bonds, are considered, lower risk, as well, as tax – free (wholly or partially), they generally pay, a lower rate, than corporate ones!
3. Real estate: For most, the value of our house, is our single – biggest, financial asset! In the longer – term, real estate has performed, at, or better than most other vehicles, but, should never be considered, a short – term, fix!
4. Bank/ Insurance: Parking one’s funds, either in the bank, or buying insurance, are considered, safe, secure vehicles. However, the rate – of – return, is often lower, and some bank and insurance vehicles, are far less liquid, than others!
5. Options (buying, selling, covered, naked): One stock strategy is using options, as investments. These come in a variety of forms, and various risks. One can either buy, or sell an option, and usually, selling, has lower risks, while buying, has stock – market, short – term, fluctuation risks/ exposure! The difference between a covered, and a naked option, is the former, means, you own the underlying stock, you are selling the option, on, and therefore, reduce your potential exposure/ risk.
A wise strategy, would be, to learn more about each of these possibilities, give yourself, a check – up, from the neck – up, and decide, which may be best for you. The wiser, and educated, the consumer, the better he might make an informed decision!