Anyone planning an investment should assess it according to the aspects of risk, return and liquidity. No general recommendation can be made here, as every investor has his or her own ideas and requirements regarding these values.

Basically, however, it can be reduced to this denominator: The desire for the highest possible return on the investment must be subordinated to the investor's maximum willingness to take risks.

It is well known that the highest returns are bought with a high risk and, conversely, the particularly safe investments do not yield a particularly high return. Every investor should decide for himself where the personal pain threshold lies to the best of his knowledge and conscience - and always bear in mind the possibly negative outcome of the investment.

Irrespective of the security and return of an investment, there is also the question of how much capital is tied up in the investment. In most cases, high returns also require a longer commitment to certain investments, which is only recommended if you as an investor do not need the money in the meantime.

If, on the other hand, you want to remain flexible, you should choose investments without a major time commitment, which may, however, have an impact on the level of return.

Incidentally, a statement regarding investment security cannot be made on the basis of liquidity alone, since there are short and long capital commitment periods for both secure and insecure investments. The same applies to the level of return, which does not necessarily have to be related to the investment period.

Look for balance!

For diversification of investments, risk, return and liquidity should be balanced. To achieve this, every investor should be able to accurately assess the risk profile and the amount to be invested - including all the effects of a possible loss.

The magic triangle of investment clearly illustrates the mutual dependencies. The following diagram shows you the interdependencies of the three goals that every investor pursues when investing money: Return, security and liquidity.

The magic triangle of investment shows a simple principle:

Every investor wants to invest his money as safely, profitably and liquidly as possible. But all three aspects are incompatible with each other. This means that the safer and more liquid an investment is, the lower its return in the end.

The triangle is meant to illustrate that only two of the three goals are ever compatible and thus achievable. You must therefore decide on the two points that are most important to you.

 
A portfolio should distribute risk as well as possible

The logical goal of any investment is thus to maximise the possible return with as little risk as possible. It is also desirable to have a flexible orientation that allows for timely liquidity, if necessary. This can be achieved, for example, by investing in different assets that are not necessarily directly related to each other.

Example: If someone bought shares in the nuclear power companies ten years ago, he could earn good money with them. At the time of the nuclear phase-out, however, the losses hit him hard because all the shares had similar conditions. Intelligently spreading the risk across stocks of companies that rely on green electricity would partly offset or even make up for these losses.

Of course, it does not always have to be the same industry. Effects in one industry can show up in other industries in completely different ways and vice versa. It have great impact on price movements in trading terminals of Exness Broker Company.

This can also be applied to entire markets. If, for example, the stock market in Asia weakens, this does not necessarily have to be bad for the stock market in Europe. This dependence of values on each other is called correlation. A low correlation is advantageous for optimal diversification.