It is becoming increasingly more difficult to classify investments into a particular type as the lines are beginning to blur between those we associate with being traditional, and those that were considered alternative. Once stodgy pension funds may now be holding various forms of derivatives, because without riskier investment products, they find it difficult to achieve the returns necessary to fund the plans.
We are starting to see the merging of traditional financial products with the millennial investment world of cryptocurrencies and blockchain projects.
It would take years to learn everything there is to know about investing. So as not to overwhelm you, we will provide just the basics of traditional investing products, terms, and strategies that you are most likely to come across. To explain investing products, styles, strategies, and concepts, short and easy to understand videos and will account for the majority of the material. We will go further in depth and provide more material about investing in cryptocurrency, because very few people are prepared for the upcoming digital financial revolution. Because it is a new technology with massive amounts of money being thrown at it, there is a lot of self-serving ‘advice’ coming from self-proclaimed ‘experts’ that isn’t in the best interests of the investor, so proceed with caution. Within this module, there is also entry-level material on topics such as the economy and how money works, that could have a dramatic long-term affect on the value of your investments.
Before you jump in, you need to understand the risks associated with various financial products, so you can decide exactly how much risk you can tolerate and still be able to sleep at night.
Investment Allocation by Risk Level
When most people think of investment risk, they may naturally think of the ones that are high risk only. All investments involve risk! The greatest risk of so called ‘safe’ investments, is their loss of value over time due to inflation. Let’s say you found a $1000 bill that had been hidden by your bank-hating great grandfather 100 years ago. He was saving it because he wanted to buy a fancy new car, but didn’t trust anyone to hold it for him as an investment. The bill itself is still only worth $1,000, but a new car will now cost close to $20,000. Great Grandpa’s mattress-money has lost a lot of purchasing power over the last 100 years. That is inflation, and that’s what happens when you don’t put your money to work for you.
The infographic gives you a general guideline on both the risk levels of various investments, and the maximum that should be held in each classification. It is important to remember that these risk levels are not rigid for each type of investment. For example, a mutual fund can be relatively low risk or very high risk, depending what it is holding for investments. Bonds with a AAA rating are much less risky than bonds with a B rating. Buying real estate can be very risky if the market is over-inflated, but less risky after a correction. Furthermore, there will be a lot of people that will not accept high risk and/or low risk investments, so their portfolio may have nothing in those categories of the pyramid.
“We owe it to this generation to respect their enthusiasm for virtual currencies, with a thoughtful and balance response, and not a dismissive one”
Christopher Giancarlo, chairman of the Commodity Futures Trading Commission (CFTC), testifying at the Senate Banking Committee hearing on cryptocurrencies