How to balance risk and reward – that is the question for every investor.
Should you accept a lower return in exchange for peace of mind? Or should you attempt to make your money grow more quickly and face the possibility of losses? In fact, the best solution to the dilemma is neither.
He is also the author of one of my favourite quotes about the very best return of any asset class:"the stock market is a mechanism for transferring wealth from the impatient to the patient".What you should do next will depend on your circumstances.
Investments have varying degrees of accessibility or liquidity. An investment that allows you to get at your money immediately is considered ‘highly liquid’. Cash in a deposit account or publicly quoted shares, for instance, are both liquid. Property and pension plans are not. The very best rate of any deposit account is the 10-year National Solidarity Bond, which offers 22% tax-free . So if you want a better return, you must take some risk.In general, the higher the return, the greater the risk. The highest possible returns are to be made from investments such as managed funds, commodities and spread betting – but you can lose substantially more than your original investment.
As already mentioned, you should start by diversifying into the three most important areas of investment – your emergency fund, your pension and buying your own home. Having done this, I would suggest putting your money into the following five areas:2. A 'basket’ of directly held stocks and shares - indexed funds.4. Higher risk and tax-efficient investments such as hedge funds, emerging markets, CFDs, derivatives etc.
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