With so many things going wrong in the financial world, gold has made a glorious comeback. It will be a huge mistake though to shy away from financial assets and shift to safe heavens such as gold due to the lower returns in the last few months. While gold is a good store of money, you can't use it to create wealth in any considerable manner. For wealth creation purposes, you need risk.
Why does an investor need risk?
Everyone invests their money in the hope of a return. Risk is the chance that rather than a positive return on your investment, you get a return lower than expected or the worst, end up losing money. There is nothing as a risk-free investment. Government-issued securities are thought of as risk-free. But in some countries, even the government has defaulted on payouts for the bond issued.
Thankfully, Indian government securities are termed as risk-free. This risk-free interest rate today is about 6.8% every year. This also signifies that, if you wish to earn anything more than this return, you need to take on some risk. Return earned is bound by risk taken.
Although bank deposits are low risk, they offer a relatively low return as compared to market-linked securities such as debt mutual funds. In order to grow your wealth, you need a return higher than the risk-free return. It has to be something that can beat long term inflation and is also, tax-efficient.
Equity investments can help to achieve this. It is important to remain invested through periods of turmoil. This will smoothen out the risk that appears from daily volatility. In case of debts assets that are market-linked, you require at least 2-3 years and for growth assets such as equity and real estate, you will require more than 5 years for the best returns.
To know more about this, consult experts like Wealthclock Advisors. They are an excellent financial advising firm who offer the most valuable mutual fund investment advice.
All risk is not good
Not every risk will lead to a potentially higher return. If someone is guaranteeing a 12% return on a yearly basis, does it come without risk? No! There could be unreasonably high risks involved! Why so? Well firstly, the return is guaranteed and secondly, it's a considerably high number when you consider the risk-free return.
This kind of risk can make you lose your valuable money.