How to measure risk and return on investments
In my previous articles, I have mentioned a lot about risk and return. Actually, what are risk and return and how they are measured?
There are two types of risk:
1. Systematic risk- the risk of being invested in an asset class, such as deposit, bonds or equities.
risk- the risk of owning an instrument, such as holding of HSBC shares
There are also different types of return:
Risk can be minimized by the following methods:
Investing in different asset classes, such as deposits, fixed income instruments and equities can reduce risk of the portfolio, as different asset classes tend to move in a different direction during certain time. For example, bonds tend to go up when the economy is in a recession while equities will go down when the corporate earning is falling.
By diversifying into different countries can also reduce the risk of the portfolio. For example, by investing part of your asset outside Hong Kong into USA and Europe allows you to participate in the growth of these countries when Hong Kong is in recession.
Therefore, by adopting the above strategy can reduce the risk of your investments.