The Trade Off for Investor’s Between Yield, Risk and Liquidity
Investors need to arrive at the right decisions regarding their investment plans. They should also make comparison of the different types of investments available. Planning for investments means finding ways to make money more productive or make it grow. Some of the common types of investments include bank savings accounts, treasury bonds, foreign trades and stocks.
Before making an investment decision, investors need first to consider the three factors or objectives of investment which are the yield, risk and liquidity. These factors have a role that can greatly influence the outcome of an investment. Yield or return is an important aspect in investment. High yielding investment is very attractive to most investors since a high return in investment indicates a good investment decision. The next factor which is also important is the risk involve. The risk refers to the security of an investment. A highly secured or low-risk investment means the investment have a small chance to suffer lost or failure. Then finally is the liquidity of an asset or investment. Liquidity pertains to the speed or ease in converting an investment or asset into cash or money after the investment period.
The investors need to calculate the best trade-off or compromise between the three. High risk investment is less secured but most of the time produced a high yield. Some investment like bank saving accounts is considered highly liquid and low-risk but has a relatively low yield. After taking into account the three objectives, the success of an investment therefore depends on an investor’s ability to identify the best trade-off or compromise. It could be a high yielding, low-risk and a high liquidity investment.
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“Investment Triangle-Three Compromising Objectives.” Look This Way Too! gururaghavan.blogspot.com 2008. Blogger.com. 4 November 2008 <http://gururaghavan.blogspot.com>.