| Before making a decision on what to invest in and | | | | bonds for you to purchase along with a host of |
| what to avoid, a common investor needs to | | | | other investors. These professionals of course |
| know that he or she has to do to find the | | | | have a better idea of what to buy and what to |
| optimum balance between risk and return. A lot | | | | leave. This results in greater returns on your |
| of investors tend to take more risk for hope of a | | | | investment. |
| greater return, jeopardizing their capital. On the | | | | The return on bond funds depends upon interest |
| other side the extremely risk averse investors | | | | rates. Higher rates of interest will yield lower |
| look for risk free investments only, eliminating the | | | | return on bonds and higher returns on money |
| prospect of earning a greater return. The | | | | market securities. It is advisable not to make long |
| common investor also requires knowledge of the | | | | term investments in bond funds due to the |
| different types of investments he or she can | | | | fluctuating nature the rate of return. Money |
| make. | | | | market securities are the safest form of |
| Formulating the optimum portfolio is all about | | | | investment as they are completely risk free. |
| choosing the right investments and appropriating | | | | After settling the modes of investment, the |
| the right proportion to each type of investment. | | | | investor needs to make the most important |
| So it is all about choosing the right investment mix | | | | decision. That is, the investment mix which gives |
| to have the best investment portfolio. The | | | | the maximum return or formulation of the best |
| different types of investments one can generally | | | | investment portfolio. Here we need to recall that |
| make are stocks, bonds and money market | | | | stocks carry the greatest risk, followed by bonds |
| securities. These three types of investments | | | | while money market securities carry negligible risk. |
| make up the portfolio of any average investor. | | | | Being to risk averse and putting the greatest |
| A common investor cannot comprehend the | | | | proportion of your investment in the money |
| reasons of fluctuations in stocks. Though investing | | | | market will yield the lowest return though it is the |
| in individual stocks and bonds has its appeal, it is | | | | safest way to go. At the same time you should |
| not the preferred way to go for the average | | | | not be taking too many risks for a greater return. |
| investor as he or she may not be able to pick the | | | | Applying the principle of diversification is the key |
| right stock in most cases. Therefore the safer | | | | to the best investment portfolio. |
| way to go is to invest in stock funds. The same | | | | Summarily, to cut down on the risk of stocks, |
| goes for bonds and money market securities and | | | | invest in a number of them. Do not forget to |
| here you have the bond funds and the money | | | | make investments in short term bonds and |
| market funds. | | | | always put some amount in money market |
| When you invest in stock funds instead of | | | | securities. Divide your investments across and |
| individual stocks, it means that you are dealing | | | | within these three different types of investments. |
| with money managers who pick the stocks and | | | | |