The internet is filled with articles about various investment instruments from bonds, mutual funds to etf to robo-advisors to crypto and to NFT!
For the new and uninitiated who needs a basic mental frame of how these instruments stack up, I’ve put together a simple ladder of complexity. Typically, a more complex product requires more knowledge and experience.
Here’s the downwards ladder of instruments.
Product >> Risk Dependence
Bonds >> Interest Rate Fluctuations. Generally small, however, any bond can gap down very quickly.
Equities >> Huge universe and many different kinds, however, it is based on the actual stock value.
Mutual Funds. Unit Trusts, Robo-advisors >> Different approaches to pass the investing decision to a Fund Manager who buys a group of equities (generally). Your risk is in choosing the right fund manager.
Derivatives (Options, CFDs, Leveraged Certificates) >> Typically, similar to Equities, however, you are now not just buying on the stock, you are also betting on sentiment and/or timeliness. It adds another 1-2 layers of compounded complexity.
Structured Products >> A very benign term that is used by banks and investment houses to structure a product that meet your needs but is usually biased to their appetite. Legally, it will meet because you do a fact find, but what happens is that many instruments are packaged within it to meet the letter of the law. The cost of these instruments are added into the structure.
Ultimately, all investments are you taking a position against risk, no matter how well packaged or marketed it is. Be open and honest with that, then you will not have dreamy expectations of your investment.