Which financial-asset class is riskiest and which is the safest?
Equities (ex. stocks, business ownership) have traditionally been considered the riskiest investments, while cash and cash equivalents (insurance savings, gold/ silver) have been considered the safest. However, there can be exceptions in either case. Cash can be unusually risky at times (Forex/ Crypto), such as when inflation is raging higher, and some stocks are safer than others, though stocks are all generally hurt by rising interest rates.
At the dangers of higher inflation, cash is not a great investment, while a broadly diversified portfolio of stocks has helped investors maintain their purchasing power over time.
The fact that diversifying is essential; Asset allocation will help you perform better avoiding some unexpected surprises. Building a portfolio that reduces your exposure to unnecessary risk is crucial.
Which asset classes are there?
Cash is how most people get paid and what we often use to make purchases, so it’s a highly liquid asset. It might include either U.S. dollars or currency from another country (or region, in the case of the euro). In contrast, cash equivalents are assets one can easily convert to cash. Both asset types usually have very low risk but little growth potential and are especially subject to inflation. Examples include money market accounts, savings accounts and cash itself.
Equities include shares of stock in companies, which may include publicly traded companies or private companies, and they represent an ownership stake in those businesses. These assets may have growth potential but can be more volatile than other types of assets. Stock prices can change based on company performance, investor sentiment, and economic conditions. Equities include both common and preferred stock. Buying equities through a stock mutual fund or exchange-traded fund (ETF) can allow you to buy a diversified portfolio quickly and easily. Stocks have some of the most attractive long-term returns among major asset classes.
Fixed income is an asset that investors buy in exchange for interest payments over time. Fixed-income assets tend to fall between equities and cash in risk and growth potential. However, both fixed income’s risk and reward potential tend to be low. The asset class of fixed income includes assets such as bonds, annuities, and CDs.
Real estate may include many types of real property, including residential real estate (as either a primary residence or investment property), commercial real estate and real estate investment trusts (REITs). Real estate tends to appreciate slowly over time, and this asset class may perform well in inflationary climates that may be more adverse to other asset classes.
Precious metals may often make a good countercyclical investment and include well-known investments such as gold and silver but also many others. Precious metals may perform well in economic climates that are unfavorable to other asset classes.
Alternative investments are investments that fall outside of the other, more traditional asset classes such as private equity or hedge funds. In some cases, they can be newer assets, such as cryptocurrency (though many well-known investors strongly resist crypto as an asset class).
Part of the appeal of alternative investments is that they may be less correlated to public investments, offering some diversification to investors. But alternative investments may also give investors access to attractive investments that are otherwise off-limits to most investors.
12 ways to invest your money
Crypto currency
Forex / Currencies
Individual stocks
Index funds / ETFs
Real estate development
Real estate commercial
Peer to peer lending
Your own business
Gold
Silver & other metals
Bonds
