Safe Assets and Risk Assets

In the process of investment and financial management, we often hear the concepts of safe assets and risky assets. So, what do they mean? How to distinguish and choose assets that suit you?

Safe assets refer to those assets with stable returns, small fluctuations, and low risks, usually with the goal of capital preservation or value preservation. For example, bank deposits, treasury bonds, currency funds, etc. are all safe assets. The characteristics of safe assets are that they can protect investors' principal from market fluctuations and provide a certain rate of return, but it also means that the rate of return is relatively low and may not outperform inflation.

Risky assets refer to those assets with uncertain returns, high volatility, and high risks, usually with the goal of pursuing high returns. For example, stocks, funds, futures, options, etc. are all risky assets. The characteristic of risky assets is that they can provide a rate of return higher than the market average, but it also means that investors need to bear the possibility of principal loss and face the uncertainty of market changes.

There is a certain negative correlation between safe assets and risky assets, that is, when the market environment is unfavorable, investors will turn to safe assets to avoid risks, and when the market environment is favorable, investors will turn to risky assets to pursue returns. Therefore, in investment and financial management, appropriate allocation of safe assets and risky assets can achieve a balance between returns and risks.

So, how to distinguish and choose safe assets and risky assets? This largely depends on the investor's personal circumstances and preferences. Generally speaking, investors need to consider the following factors:

Investment objectives: Investors need to clarify what their investment objectives are, is it capital preservation, value preservation or appreciation? Is it short term, medium term or long term? Is it to meet daily expenses, education expenses, retirement planning or other purposes?

Investment risk tolerance: Investors need to understand their investment risk tolerance, that is, how much psychological and financial pressure can they withstand when faced with principal losses or income fluctuations? Generally speaking, investment risk tolerance is related to the investor's age, income, assets, family status and other factors.

Investment horizon: Investors need to determine how long their investment horizon is, that is, when do they expect to use the funds earned from the investment? Generally speaking, the longer the investment horizon, the higher the risk investors can take because there is enough time to make up for losses caused by market fluctuations.

Investment rate of return: Investors need to estimate their investment rate of return, that is, how much return can they expect to get from their investment? Generally speaking, the investment rate of return is directly proportional to the investment risk, that is, the higher the rate of return, the higher the risk, and vice versa.

Based on the above factors, investors can divide themselves into the following types:

Conservative: The investment goal of this type of investor is to preserve capital or value, with low investment risk tolerance, short investment period, and low investment return rate. It is suitable to choose an investment portfolio that focuses on safe assets, such as bank deposits, treasury bonds, currency funds, etc.

Stable type: The investment goal of this type of investor is to achieve moderate appreciation on the basis of capital preservation or value preservation, with medium investment risk tolerance, medium investment period, and medium investment rate of return. It is suitable to choose an investment portfolio in which safe assets and risky assets account for about half each, such as bond funds, hybrid funds, balanced funds, etc.

Active type: The investment goals of this type of investors are the pursuit of high returns and value-added, high investment risk tolerance, long investment period, and high investment returns. It is suitable to choose investment portfolios focusing on risk assets, such as stock funds, index funds, industry funds, etc.

Of course, the above is just a general classification and suggestions, and specific choices need to be adjusted and optimized according to the market environment and personal circumstances. In actual operation, it is recommended that investors diversify their allocation to safe assets and risky assets of different types and industries to reduce overall risks and increase overall returns.