Risk and Return
As the old adage goes: "Fortune favors the bold." In investments, your money can render higher profit only if you are willing to accept higher risk. Risk is the probability of incurring losses. When managed prudently, however, risk also drives return. All types of investments have inherent risks involved. As an investor, it is important to understand the different investments available and the level of risk you are taking to ensure that it matches your appetite for risk.
Investments may be classified into three (3) basic types or asset classes: Cash and cash equivalents or Money Market; Fixed Income or Bonds; and Equities or Stock.
Money market are short-term placements or securities that mature within a year's time. The short-term nature of these investments means less uncertainty and less waiting time before you can realize the return of your investment. Time deposits and government debts like Treasury Bills are classic examples of money market investments. Pooled funds that are invested in Treasury Bills and time deposits are also part of this asset class.
Fixed Income Securities
Fixed income securities or bonds are debts issued by the government or by private corporations. Bonds typically have tenors of 3-25 years. Some examples are Retail Treasury Bonds (RTBs), Republic of the The Philippines bonds (ROPs), corporate bonds, and pooled funds that are invested in bonds.
While bonds are debts, equity investments represent ownership in a corporation. Preferred shares, common shares, and pooled funds that are invested in stocks are the most common examples of an equity investment. Among the three asset classes, equities are the most volatile but they also provide the highest potential return.
Contact your Relationship Manager or visit the nearest BPI branch to learn more about investment risk and return.