The Everfi's Highest-Risk Investment: What You Need To Know

EverFi is an investment game that helps players learn about investing. The game asks players to consider their risk tolerance and time horizon. For example, younger investors with longer time horizons can take on more risk, while older investors nearing retirement may shift toward more low-risk securities to preserve capital.

Risk and return trade-off

Corporate bonds are an example of a moderate-risk investment. They are suitable for investors seeking steadier but potentially higher returns than government securities, with a reasonable level of risk (depending on the bond). To invest, you can buy these bonds through a brokerage account.

Younger investors with longer time horizons can take on more risk, knowing they have time to recover from periodic downturns in volatile assets. Older investors nearing retirement may shift toward more low-risk securities to preserve capital. Experts typically recommend a diversified portfolio containing a mix of low, moderate, and high-risk assets tailored to your goals, timeline, and risk tolerance. Some higher-risk assets allow for growth potential, while maintaining a core of stable investments hedges against volatility.

For example, investors with a low-risk tolerance may have a short time horizon and are usually looking to maintain the value of their investments with minimal growth. On the other hand, investors with a high-risk tolerance may have a long time horizon and are looking for strong growth.

Diversified portfolios

Younger investors with longer time horizons can take on more risk, as they have time to recover from downturns in volatile assets. Older investors nearing retirement may shift towards more low-risk securities to preserve capital.

It's important to note that all investments involve a natural trade-off between risk and potential returns. Assets with higher return potential typically carry greater risk, while low-risk investments like CDs and Treasurys provide stable but modest returns.

To further diversify your portfolio, you can consider different types of accounts and investment vehicles. Brokerage accounts, for instance, are used to buy investments like stocks, bonds, and mutual funds. Equity funds and fixed-income funds cater to different investor profiles. Investors with a short time horizon and low-risk tolerance may prefer fixed-income funds to maintain the value of their investments with minimal growth.

By diversifying your portfolio, you can strike a balance between safety and growth. You can minimise losses during market downturns and maximise returns over the long term.

Low-risk investments

While high-risk investments such as stocks, bonds, and mutual funds can offer high returns, they also come with a greater risk of loss. On the other hand, low-risk investments like CDs and Treasurys provide stable but modest returns. These are well-suited for older investors nearing retirement who want to preserve their capital and protect the value of their investments.

Investment-grade bonds, particularly short-duration ones with the highest AAA rating, are considered low to moderate risk. They are highly rated, indicating a lower default risk, and offer moderate returns. However, bond prices can be sensitive to interest rate changes, and the risk increases if the issuer faces financial troubles or insolvency.

Corporate bonds are another option for investors seeking steadier returns with a reasonable level of risk. These can provide potentially higher returns than government securities, depending on the bond. To invest in corporate bonds, you can buy them through a brokerage account.

Experts generally recommend maintaining a diversified portfolio that includes a mix of low-, moderate-, and high-risk investments. This allows for growth potential while also hedging against volatility. A diversified portfolio can be tailored to your goals, timeline, and risk tolerance. For example, younger investors with longer time horizons can take on more risk, knowing they have time to recover from downturns in volatile assets.

Overall, while low-risk investments may not offer the highest returns, they provide stability and peace of mind, especially for those nearing retirement or with a low-risk tolerance.

High-risk assets

Examples of high-risk assets include stocks, corporate bonds, and mutual funds. Stocks are considered high-risk because their value can fluctuate significantly, and they are sensitive to market conditions. Corporate bonds are another high-risk asset, as they are sensitive to interest rate changes and can become riskier if the issuer faces financial troubles. Mutual funds, particularly equity funds, are also high-risk as they are heavily invested in stocks.

It's important to note that high-risk assets are not suitable for all investors. Those with a low-risk tolerance, such as older investors nearing retirement, may prefer to focus on low-risk securities to preserve their capital. However, a well-diversified portfolio should include a mix of low, moderate, and high-risk assets tailored to the investor's goals, timeline, and risk tolerance. This diversification helps to minimise losses and provides a balance between growth potential and stability.

Investment-grade bonds

All investments involve a natural trade-off between risk and potential returns. Generally, assets with higher return potential also carry greater risk, while low-risk investments like CDs and Treasurys provide stable but modest returns. Younger investors with longer time horizons can take on more risk, knowing they have time to recover from periodic downturns in volatile assets. Older investors nearing retirement may shift toward more low-risk securities to preserve capital. Experts typically recommend a diversified portfolio containing a mix of low, moderate, and high-risk assets tailored to your goals, timeline, and risk tolerance. Some higher-risk assets allow for growth potential, while maintaining a core of stable investments hedges against volatility.

Frequently asked questions