All investments are categorized as different asset classes. The prime among them are real estate, bonds, equities and metal. Let’s have a look at each one of them – what they stand for, the risk they carry and the returns they give.
Investments in real estate carry high risk quotient by virtue of the demand-supply unpredictablity in this industry and the over dependence on external factors which are beyond the control of most of the retail investors.
The price movement in real estate is cyclic in most of the economies and is a function of governemnt policies and the kind of economic development that a particular region is expereincing.
The returns are high which are in direct proportion to the risk factor. One should always expect the prices of real estate to be volatile.
The liquidity is low becuase of the ticket size of deals and absence of organised market in most of the countries.
They are the least risky among all the asset classes. Bond is a broader term and they comprise of infrastructure bonds, special investment bonds, government sponsored bonds, national savings certificates, post office savings, fixed deposits, commercial deposits etc.
The rate of interest earned on bonds in less compared to other asset classes. Returns on investments in bonds are generally guaranteed by the companies/institutions and are backed by sound government policies and guidelines. The liquidity of these investments is high.
Equity investment is the most risky asset class. The investments are made through the secondary market where one can purchase the shares/scrips of different listed companies. The stock markets are very well regulated in most of the developed countries and some of the developing countries. The returns vary depending upon the degree of the risk that has been taken in the investment choice of the scrip(s). The liquidity is high.
Gold remains to be the most stable metal with respect to liquidity and returns. The risk quotient is low and liquidity is high. As a long term investment tool they have always been in demand by investors of all kinds – retail and otherwise. Returns are moderate.