Saturday, December 26, 2009

Risk versus reward

Risk is always directly proportionate to reward. The same holds good in investments also. The riskier investments are always give good returns. For example, Investing in Stock is riskier than investing in Real estate. Investing in real estate is riskier than investing in Gold. Investing in Gold is riskier than investing in Bonds. Investing in Bonds is riskier than fixed deposits.
When taking into consideration, investing in Stocks are looking riskiest of all. Dow was trading around 14000 in 2007 and it traded around 7000 in 2009 march. The Indian BSE Index Sensex was trading around 2100 those on January 2008, but by 2008 October, it depreciated by more 60 percent. The Chinese stock market Index was trading around 6100 in October 2007 and by October 2008, it was trading around 1670.

Investments in Stocks would have given negative return to one’s portfolio. Whereas, those who have invested in Gold, would be in good profits till now. Likewise those who have invested in fixed deposits would have got a fixed small return.

But in the longer run, say in another 5 years, Dow may be trading above 25000, Sensex may be trading above 50000 or Shanghai Index may be trading above 15000. If you take in to consideration the return we get from these Indices, it would be phenomenal. Stocks are riskier but in the longer run it will perform above other assets.
So risk is always is directly proportionate to rewards. In one’s portfolio all types of investment of various risks should be maintained for successful investing. One should not choose only a particular asset class. One should choose right mixture of assets including high risk stocks and low risk fixed deposits.
Happy investing.


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