Arrange the investments in order from the highest risk and return potential to the lowest risk and return potential

Arrange the investments in order from the highest risk and return potential to the lowest risk and return potential:

A. property

B. bonds

C. starting a business

D. mutual funds

Solution:

C. starting a business

A. property

D. mutual funds

B. bonds

Explanation:

Investments are the exchanges of income during one period for assets that are expected to earn income in future periods.  It is the act of committing capital now in order to obtain future earnings.  The risk and return calibration depends on one's personal circumstances and risk appetite.

Some investments offer higher returns with great growth potentials and higher risks while others offer lower returns with lower risks.

Starting a business has the highest risk and return potential.  The risk is that you may not realise any return.  However, if you are successful in the business, you can get the highest return ever.

Property investments either by building new property, buying built property, or investing in property investment fund may also yield so much returns but the risks are higher than other investments in this class.  There is no guarantee that prices of property will not fall so dramatically that you sustain big losses.  There is always need to insure your property against disasters like fire.

Mutual funds are professionally managed funds whereby money is pooled from different investors in order to buy stocks, bonds, etc. with long-term horizon.  It has higher risk profile than investing in bonds as an individual, because you could recoup some returns in bonds as interests are paid periodically.

Bonds are debt securities to a government or business with the promise of repayment and period interests.  They are generally risk-free investments with lower returns because of the guaranteed repayment.

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