Performance / risk / liquidity

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financial triangle

A rule of thumb of finance is to say that all financial assets a 3 of the following:

  • Liquidity: ability to quickly monopolize the money, or ability of resale
  • Performance: how much you'll earn
  • Risk: what are the chances of losing

No serious financial instrument displays the three qualities (high yield, low risk, high liquidity) at the same time.

A product that would present the qualities of the upsells or minimizations of the three vertices of this triangle is either insufficiently explained, are not state one of the characteristics that determine, either hiding a defect and deserves this title further analysis.

Corollary of this rule of thumb:

  • highly liquid investments (type booklet), without risk, only offer low yields: is the case of the monetary products
  • highly liquid investments, with high, performance expectations were high levels of risk: this is the case of the actions
  • highly liquid investments, with a high level of risk, offer high performance potentials: this is the case of the options

 

The risk-reward ratio

Why this couple?

Because investors are willing to take more risks than in Exchange for a higher expected return. In a market where access to financial products is the same for all investors, it is impossible to get a profitability high with low risk or no. This means that a niche market is possible.
Symmetrically, an investor wishing to improve the profitability of its portfolio must agree to take more risks (see the CPAM model).

Each investor is more or less "risquophobe", it has its own assessment of the "optimal" balance risk/return.

The behaviour regarding the risk also depends on the amount to save. If the amount of savings is important, the investor can devote a portion of the total amount for risky investments. On the other hand, if the level of savings is low, low-yielding but safe investments are preferred. It is not optimum for that risky assets or assets without risk.

The risk premium

It is the difference between the performance of State borrowing (because it is considered as safe, Editor's Note: and Greece Hein?) and the return of a more risky investment, as an obligation of company or an action. In other words, it is the additional compensation is offered to the investor to accept to buy these bonds or these actions rather than subscribe to Government.

As regards actions, considered traditionally are more efficient in the long run than bonds because of the higher risk they represent.

More a company is in a difficult situation, more great are the doubts on its ability to repay its borrowings (bonds) or profits (shares), more the price of the bonds it issues will be low and the course of its low shares.

Studies have shown us that the assets most volatile (so the higher risk) were (in descending order) the stocks, bonds and the currency. Indeed, the actions are most sensitive to the good and bad news, as a result of this asset class the class at the prospect of the most interesting performance (but also the riskiest asset class). However, we often notice that detention on the long-term actions reduced volatility, thereby reducing the risk associated with these assets.

Also note that for example the yield increases with barriers, for example more you invest more performance is strong, especially as it is blocked long

example in Hexagon

Hexagon-e-Investissement-crowdfunding-crowdlending-crowdbuilding-test-Avis-rendement-04

example more borrowing is long more rate rises.

courbe_des_taux duration

There is more risk over the back is important and most requested rate climbs severely.

bondora risk return interest asked loss

bondora risk return interest asked loss 2

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