There are many types of investments. Mainly classified into four forms of assets:

1. Property

2. Short Term Deposits

3. Shares

4. Bonds

Each form of asset involves different investment that caters to different type of risk, return, liquidity, and maturity duration.

Brief Description on Different Types of Investments:

• Short Term Deposit: Bank’s savings account is the simplest form of short-term investment. One of the main advantages of this investment is that, the supplier avows 100 % guarantee of the returns. However, returns offered are low in comparison to other investments, but there is no chance of investment dropping in value like other types of investments.

Short-term deposit offers total liquidity. It means investors can withdraw all their money whenever they need. It is perfect option for short-term savings or emergency funds.

However, it is not a valid option for medium of long- term deposits.

Bank Fixed Term Investment: The lump sum money deposited for a set term usually six or twelve months is locked away by the bank for a fixed period. Here, the investors get higher interest than a straight savings account. Depending on interest rates, this is investment option is the best for medium or short-term investment.

• Bonds: Basically, it is considered as IOU issued by a company or government. The investors invest money in the bonds for a certain time, to get it back at a particular interest rate. For a fixed period, bonds lock away the investor’s money. However, sometimes, the investors can withdraw the deposited money for the trading purpose.

Usually, a bond is not an ideal option for short-term investment. Instead of bonds, the small investors are supposed to go for managed funds. It would be good for small investors not to directly invest in the bonds.

• Property: It is safe and profitable to invest in a property. It is beneficial for long-term goals. Most importantly, the investment without the right knowledge and deft attention is liable to suffer significantly.

Moreover, the losses incurred in property investments are not published. Prior to investing in any property, the investors need to understand and manage different issues and aspects of property investment.

There are two types of Property investments: Direct and Indirect Property Investment.

Direct Property Investment: The investors have to manage the daily administration such as finding tenants, bond and rent collection, and looking after the maintenance issues. Or else, go for property Management Company that charges fees for these services.

Indirect Property Investment: The investors have options to invest either in managed investment fund or superannuation scheme. Here the investors acquire ownership without need of actually finding the property and doing the hands on management. It offers the diversified benefits for the average investors.

• Shares: The investors are viable to get right share and value of the company, by investing in a company listed on a stock exchange. The investors can assess return through dividends and capital gains. Through shares, investors can invest in vast range of companies operating in different regions and can make benefit of long-term gains.

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Without a thorough understanding of the risk, investment planning is almost impossible. In an investment, there always exists a return / risk tradeoff. This means that, greater the acceptance of the risk, greater is the potential return as the reward for the commitment of ones funds to an uncertain outcome. Generally, with the rise in the level of risks, the rate of return also needs to increase and vice versa.

Before discussing the risks in detail, it is necessary for investors to know as to how to handle, perceive and define the risk in various ways. The best way to handle risk is by avoiding it. This occurs when an investor chooses to avoid the activity associated with the risk. Typical instance is the risk of injury while driving on an automobile. A person can altogether avoid such risks by choosing not to drive.

In the world of investment, avoidance of some risk is possible through the act of investing in the risk free investments. Usually, short term maturity U.S. government bonds equate with risk free rates of returns. Investors can completely avoid risks associated with stock markets by deferring from investing in equity securities.

Risk Transfer:

Risk transfer is the other method of handling the risk. The concept of insurance is an easy to understand instance of risk transfer. In case, an individual has the risk of becoming severely ill, then the most advisable option is to go for health insurance. Health insurance is advisable for people having the risk of becoming severely ill. An insurance firm allows the transfer of risk of large medical bills to the individuals, in lieu of a fee known as an insurance premium.

The firm knows that statistically, if they have a large enough pool of insured people, they can easily pay the cost of the minority requiring extensive medical treatment and can have enough amounts for recording profits.

Apart from insurance, risk transfer also happens in investing. For instance, an individual can purchase an insured municipal bond or purchase a put option on their stock. This would permit that person to sell or put their stocks to someone at a set price, irrespective of how lower the prices drop. There are plenty of such instances of risk transfer in the field of investing.

Influence of Time on the Risk:

In terms of risk, investors need to have a thought on the time in their investment plans. The objectives pursued can require a policy statement pertaining to certain planning horizons.

For individual investors, it is for a year or two in the anticipation of down payment on the home purchase, or the lifetime planning for retirement. Generally, the longer the time horizon, the more is the incorporation of risk in the financial planning.

While analyzing the risk of ownership of fixed income securities such as bonds, time has a different effect. As compared to a short term, there is more risk associated with the long term holding of a bond.

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There are many benefits to owning your own business. I would like to compare this to investing to help you decide which is better, investing or business ownership. While each has its benefits, both are certainly not for everyone. They have there difference and definitely have their similarities. Both represent a form a gaining financial independence. So which one is better?

Owning your own business means you have no boss and more tax benefits. It also means how much money you make is up to you. If you work hard enough at anything then it will eventually be profitable. The big benefits include doing whatever your passion is and getting paid for it, deciding when and where you want to work, and being your own boss. This truly represents a freedom that almost everyone desires.

The cons of owning your own business could be huge start up costs, working long hours to get the business on its feet, and dealing with big company competition. These are certainly not insurmountable obstacles but they must be considered. The other thing to consider is that many businesses are not even profitable for the first year or so. This is not to say that yours would not be and you hard work would not pay off eventually.

Investing in a business is much like investing in the stock market. You are spending money on something right now that you hope will produce more money in the future. However, depending on the types of stocks you are investing in, you can avoid a lot of the cons that come with starting a business. For example, you can actually be very profitable in a short time with the right stocks, such as penny stocks. You can also start with a relatively small amount of money as you learn how to invest.

You can keep you day job and use a portion of you income every month to invest in the stock market either through a traditional broker or online trading account. This is not to say that you cant start your own business and put money into investing. Its just that for many it would be too financially difficult to do both. Many businesses are definitely good investments but if that seems beyond your risk tolerance then give stock market investing a try. If you learn the ropes you can earn just as much if not more than if you would have started a business, except you wont have any business expenses except for the small trading fees.

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You should never trust just one stock so much that you are willing to risk all you money in it and no other stock. A wise investor always spreads out their money among several different stocks so as to minimize the effect of a bad day in the stock market. It doesn’t matter how how or how stable you think a company is, the fact is you should never invest solely in that company.

Were not just talking about buying different stocks here. Were also talking about investing in different industries. If oil is doing bad then commodities may be doing well or vise versa. Just concentrate on investing in several different areas so your portfolio is effected by a big hit in one specific industry.

Its certainly been proven that investors with diversified portfolios see a more consistent return that investors who invest in only one or two stocks. Diversification is also a great way to decrease risk while maintaining aggresive returns. You can even diversify with penny stocks.

Lets say you invested in this one hot stock that you were completely sure about. One day that company has some bad news and investors make run for it and the stocks takes a dive. Thats bad new for your poor portfolio. Lets say that on the other hand you invested in 10 different stocks. One of those stocks has a bad day but you aren’t so worried about it because you have nine other stocks keeping your portfolio strong. See the difference?

You dont have to limit your portfolio to stocks. You can also invest in real estate, real property, and bank CDs just to name a few. The whole idea of diversification is to protect yourself while making satisfying gains. So around and study out the best investment options for your particular goals. Diversify along the way to win the game.

To demonstrate a real world case of how important diversification is I will tell you a personal story. When I first started investing I put 10k down on a very popular stock that did nothing but climb in value year after year. I simply had no reason to believe that this stock would perform in any other way except a positive direction. Wrong!! I lost 5k as a sadly watched this stock plummet as the result of corporate fraud. Lesson learned. Diversify!! That was a lesson learned the hard way for me but you don’t have to learn the hard way. Take it from me. Invest in more than one good stock, at least 5.

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The break down of Bear Stearns caused unnecessary panic in the financial markets. The story of Bear Stearns and their refusal to listen to the old adage of holding all your eggs in one basket should be the lesson learned here.

Bear’s history itself is impressive. The firm survived both World Wars, the Great Depression and every recession and market crash since then. So why did this prestigious investment bank fail? One has to look how Bear did business.

Collateral Mortgage Obligations (CMOs) are on the front page of every financial newspaper almost every day. CMOs are bonds that are backed by people, like you and me, paying their mortgage every month.

These bonds where once thought of as a safe investment, since most people pay their mortgage bill before they pay anything else. Well, this was Bear’s main business. While other wall street firms diversified their fixed income trading desks, Bear Stearns did not. And when people stopped paying their mortgages, the game was up.

Will there be other firms that face the same consequence as Bear? Probably not. Some firms with large fixed income desks may have large write downs in the 2nd and 3rd quarters of this year, but most of these firms have diversified their operating units over the years. Wealth management, equity trading and research, asset management, and prime brokerage services round out most Wall Street firms.

With the Federal Reserve’s help, JP Morgan Chase will probably end up buying Bear Stearns (assuming their board of directors approved it). This is a good signal to US investors that the Fed will dig deep into their bag of tools to help the US economy survive the real estate bust.

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