Financial Advisor Strategies: Understanding Low Risk Investment Options

When you're considering your investment options you must consider the risk you are prepared to take and it is highly advised that you consult with a financial advisor. Cash and Bonds are the lowest risk assets classes.

Cash is low risk asset class and so, in general, the funds invested in cash will not see a fall in value through the investment period.

In exchange for this security however you should only expect to receive very low rates of return on your investment.

Given the low rate of return, quite often you will find that the rate of inflation may be running higher than the cash deposit rate. In this situation while the value of the cash may not fall, the true value of the money or purchasing power will decrease and so provide negative real returns.

The advantage to cash investment is that it tends to be the most liquid form of investment and therefore it is easily accessible. Typically cash investing would be used to provide for your emergency funds and your day-to-day funds.

Cash investment is predominantly carried out through Banks using deposit and current accounts.

Bonds

Bonds are typically considered low to medium risk depending on the type of bond that you invest in. However, there are also high risk bonds available and so careful analysis of the type of bond you are investing in should be carried out.

What are bonds?

Bonds can be described as loans given to a Corporate or Government body for a set period of time after which the principle amount is paid back in full. The issuer of the bond may undertake to pay a rate of interest on the principle amount. This is can often be known as the coupon rate. Obviously the higher the coupon rate, the higher the returns will be on your investment.

Investment Management: Don't Try This At Home

When I was young -- about the time that man discovered fire -- it was considered something of a rite of passage to work on your own car. Father and son would pop the hood and pull spark plugs, change the oil, and do other 'manly' work on the automobile. My first car happened to be a 1968 Chevy Biscayne. When you opened the hood, there wasn't a whole lot to see. You could find the plugs, the dip stick, and the windshield washer fluid without any trouble at all.

Things are different now, and people don't perform the regular maintenance on their cars anymore. Why? Because in order to do it properly, you would need at least two different computers in your garage. Today's fathers and sons have found other activities to bond over, like playing video games. For most of us, doing our own car maintenance is just a poor use of our time, and taking the car to the dealership, or another automotive expert, is a good value for our money. You can still do it on your own, of course, but it no longer makes sense.

I meet individual investors every day who 'work' on their own portfolios. As do-it-yourself investors, they try to make sense of the nuances of the global economy in their limited free time (usually after work, after dinner, and after watching "Hawaii 5-0" reruns on television). They often ask for my opinion about how they should invest natural disasters in Japan, radioactive clouds over Tokyo, Arab springs and falls, U.S. debt downgrades, political gridlocks, quantitative easings, and the implosion of the European Union, and get most of their investment news from Jim Cramer on CNBC. My advice to them is always the same: Don't try to do this at home anymore. Times have changed. The world and the financial markets have become too complicated. Hire someone to manage your money for you, but don't mess around with your own portfolio on a part-time basis unless you're prepared to lose it. You can still manage money on your own but, like working on your own car, it just isn't worth it anymore. Find something else pleasant to do with your time. Play with the kids, take your wife out on a date, play some golf, anything at all. If you find the right advisor for you, you'll discover that the money you pay for that advice is well spent and a good value.

I know this isn't what do-it-yourselfers want to hear, but it's the best advice I can offer. Trying to safely navigate today's financial markets is tough enough for full-time professionals. You might get lucky and make a few good calls, but if you have enough capital for it to matter, don't take the chance.