Bond and Cash Investing

Bond and Cash Investing

Something you should always consider when starting out in investment is exactly how much risk you are willing to take. I highly recommend that you take the time to consult with a financial advisor when making this or any other similar decision.

Okay now we have got through that quick warning and introduction I’m going to run over two low risk investments classes, cash and bonds.

Cash investments in general are a very safe investment, it’s in a low risk asset class. Therefore, normally, any investments in cash will very rarely see any kind of fall through the investments term. However, in exchange for such good security they tend to offer a very low return rate compared to other kinds of investments.

With cash investments it’s quite common for their rate of inflation to be running higher than the original deposit rate, this is caused by their low rate of return. It’s situations like this although the value of cash itself won’t fall, the actual value and purchasing power will decrease leading to negative returns.

The real advantage of a cash investments is that they are normally the most liquid form of investment, therefore they are very easily accessible. Normally cash investments are used to provide you with an emergency funded as well as a normal day to day fund. The majority of cash investments are completed directly through banks using normal current accounts.

Now onto bond investments. Bonds are normally considered medium to low risk investments depending on the kind of bond you chose to invest in. Although this is true for most bonds that you come across their are still bonds that carry a high risk so take your time to analyse the bond you are looking to invest in before make a choice.

To round off this article I will give you a quick overview of what a bond actually is and how they can be great investments. Bonds are basically a loan from you to something like a corporation, government body, or any other similar kind of organisation. These are referred to as the issuer, they offer out bonds that have a set interest rate. Investors will they be paid a set amount of interested periodically until the bond reaches maturity, at which point the investor will be paid the original cost of the bond.

The main risk factor you have to remember when dealing with bonds is the rising and falling of interest rates. Interest rates can either make or lose an investor money. If interest rates were to rise after you were to invest in a bond then the price of your bond (if sold rather than left to mature) would fall due to the fact people could get a bond for the same price that paid more in interest. This does however, work in reverse. If interest rates fall your bond will be able to be sold for more than it original value.

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