Let’s put our views here regarding various investment options available to an investor, e.g Fixed Deposits, Mutual Funds, Primary and Secondary Share/Stock Market, Property, Gold, Government Securities and Bonds etc. etc., and why we consider any particular investment instrument to be better than the rest.
I can bet that even Investment genius(like Warren Buffett or John templeton) may not favor either Risk or Return blindly w/o considering n number of factors. These factors can be geography specific, industry-specific, economic-specific or/and individual-specific.
Given the list of investment options available, i like to rank them in order of risk and return
Safe to Risky
Govt Secs – FD – Bonds (with high rating) – Gold – Property – MF – Secondary Stocks – Primary Stocks
Return (from Highest to Lowest)
Stocks – Property/MF – Gold – FD/Bonds – Govt Securities
I broadly agree with your classification of investment options according to the degree of risk that they carry along with the relative returns offered by them. To that I would add that investment in stocks can yield better/highest return only if the investment is made judiciously in stocks of sound companies and the investment is held for a longer period, at least 3 years. Otherwise, investment in stocks carries the maximum risk and can result in heavy losses if proper information about the stock is not gathered before investing in stocks.
The investment option is a subjective issue and would vary for 2 individuals, depending mainly on their financial goals, the time horizon to achieve those goals and their capacity to take risk. The investment portfolio of a person would therefore be governed by such considerations and would be an optimum blend of investment into different instruments in different proportions such that the individual’s financial goals are achieved within his desired time frame, without taking undue risks.
With the current levels of volatity, even broadly diversified portfolios are underwater, even for investors with a time horizon > 10 years. On Nov 20, The S/P 500 returned to 1997 levels. 11.5 years invested in an index of the 500 Largests Companies gave the buy an hold investor a return of 0. GICs anyone?
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