Cash and Bonds: Understanding Low Risk Investment Options

Thinking of investing your hard earned money but don’t have any idea how? There are many investment options that you can consider, but for starters, consulting with a financial advisor is highly advised. There will be risks attached to different types of investment, among them, cash and bond are considered to be low risk investment options.

investment

Cash Investments

Cash investments probably are the safest in the low risk investment options available. You will never see a fall in value all throughout the period of investment. However, it also has very low rates in exchange for the security it presents. Because of its low return rate, you will find that cash investments’ inflation rate can run higher than the deposit rate. And while the value of your cash will not fall, the real value of the money or your purchasing power actually decreases and you get negative returns.

The biggest advantage you get from cash investment is that it is very liquid and accessible. People utilize cash invests for easy access and to provide for emergency funds. Cash investments are predominantly synonymous with bank deposits and current accounts.

Bond Investments

Typically, bonds are also considered as low risk investment options but depending on the kind that you would invest in, they can also have medium to high risks involved. You have to be knowledgeable and able to carefully analyze the type of bond you are interested before you jump in.

Bonds are actually loans given to a corporate or government entity for a specific period of time where in the full amount is returned after due. Bond issuer may undertake interest rates on the principle and this is known as a coupon rate. The higher the coupon rate, means higher returns on bond investments. On the other hand, you should be wary of bond with very high coupon rates because they may also entail higher risks on defaulting on repayments of the principal.

The relatively low risk nature of most bonds make investment returns modest at best. You won’t see immediate nor huge returns on bond investments, yet you also won’t experience massive negative returns especially if you hold this until the maturity of the bonds. Still some bond investments can be volatile so you need to be careful in investing in this class.

Image Credit:
Raur Grazvan Ionut – FreeDigitalPhotos.Net

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