Saturday, June 12, 2010

Investing in a volatile market & Choosing safer investment options

Volatility has some wondering where to put their money as it is creating chaos on investment portfolio. But it is important to take a long-term view and not to do panic sales. Short-term volatility should not derail long-term investors from their long-term plans. There can be some adjustment to the portfolio by shifting to less risky assets, but a total exit from risky assets is a big NO.

The reason behind this is because purchasing power will decrease due to inflation if you put all your money into bank deposits as inflation far exceeds bank deposit rates.

People are being advised to stay invested during volatile times. Do regular investing in a disciplined approach if one is uncomfortable doing lump sum investment or feel uncertain about the market.

If limiting losses and saying whatever cash you have is your priority, there are some safer investments you can chose.

One option will be bonds which are generally safe bets but not risk-free as bond issuer might default on its debt payments. Retail investors will find it hard to invest directly in bonds as the average bond is usually sold in blocks of $50,000 to $1 million. Good news is they can opt for unit trust or fund that invests in bonds to provide diversification.

Money market funds, multi-asset funds, Gold, Fixed deposits are all alternative with potentially higher returns than bank savings deposits.

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