The best insurance against investment risk


2. Fixed Interest

Next up the risk/return slope is fixed interest. This covers investments such as government and corporate bonds, bills and debentures. Once again, bonds mainly produce income, but because they can be bought and sold, their value can fluctuate due to changes in interest rates. There is also risk associated with the quality of the issuer of the bond. Australian government bonds are considered amongst the safest investments in the world. At the other extreme, 'junk' bonds issued by some companies are very high risks.


3. Property

Good old bricks and mortar might sound like a 'safe bet', but property is towards the higher end of the risk and return chart. Investors can choose from many different types of residential and commercial property, each with varying risk and return characteristics. The property market is cyclical, and can experience downturns, but it can also provide steady and reliable income, along with good prospects of capital growth.



Shares are considered high risk investments, but they also offer higher returns to long-term investors. Large, well-established companies are usually a safer prospect than smaller start-ups. Many 'blue-chip' shares also provide steady income. These days you can invest in your local share market or in companies listed on overseas markets. As you know, share prices can move up and down over short time periods, causing anxiety for some investors. However, if you manage to find the next 'Poseidon' or 'Microsoft', the capital growth can be spectacular!


5. Alternative Assets

Some investments don't fit neatly into the previous classifications, and portfolio managers may place them into an 'alternative' asset class. This may include infrastructure investments, such as airports and toll roads, and absolute returns funds, which rely on trading strategies for their performance.


By altering the proportion of funds allocated to each asset class, portfolios can be constructed across the full spectrum of risk and return. Conservative investors can concentrate on cash and fixed interest. Investors with a long-term investment horizon and an appetite for risk are best catered for by property and shares.


How diversified are your investments?  Or a better question would be: how well do you sleep at night?