Risk Return Trade-off
In investing, investors must expect the return. However, in investment you are faced with the fact, that is a risk-return trade off. If you want get high returns, of course the risk is also high. Similarly, if you want a safe investment and low risk, then the return is small.

In every investment, it must contain the risk. Whether you invest it in stocks, bonds, even though safe as bank deposits. Therefore, you certainly can not avoid the risk of investing. However, you can still try to manage and minimize risks, one of way is diversification.

Risk itself is divided into two types, that are, systematic risk and unsystematic risk. First, the systematic risk or market risk is the risk that is `given` and `embed` in the market as a whole. These risks can not be diversified. Second, the unsystematic risk is risk owned by a company or industry specific, so that each investment has a different risk. This unsystematic risk can be minimized through proper diversification.

Portfolio Management Strategies
People often ignore diversification. The reason, minimize the potential for diversification of their return. So they chose to hold only one type of asset, such as stocks. The result, of course they have a large potential return. But if a sudden decline in market conditions significantly, of course, they also exposed to enormous losses.

How diversification can minimize your risk?
Diversification is a strategy in portfolio management to minimize the risk by combining a variety of different investment which have correlation as small as possible. Do not forget that the risk that can to diversify here is unsystematic risk.

What is correlation? Correlation describes how much the relationship between the movement of two assets. If the correlation is 1.0 for both the asset moves right direction. Meanwhile, if the correlation is 0, then the second movement of these assets had nothing to do, or can be called random. Then, if the correlation is -1.0 so the two assets move in exactly the opposite direction.

It is difficult to find correlations just right opposite direction of -1.0, so we try to make a portfolio with assets as low as possible. Why do we want a low correlation between asset? This is due to the lower correlation, then return the assets do not move in the direction. So, when the return of an asset to weaken, then the return from other assets less weak, or actually even stronger. Examples are stocks and bonds, which both have a low correlation. As the stock soared, then bond prices lower. Meanwhile, when the stock fell, the bond becomes the best choices.
Thus, poor performance of one asset in the portfolio can be covered by the performance of other assets. Thus, the portfolio is expected to produce maximum performance, and can minimize the risk so can avoided extreme losses.

After understanding the principle of correlation, now how can you diversify? Diversification generally can be done in two ways.

First, vertical diversification, the investment allocated to various asset classes, ranging from cash, bonds, property, stocks and other asset types. These assets have different characteristics, thus creating a different return in accordance with the conditions occur.

Second, horizontal diversification, such as you allocate different investments in one asset class. Here, you try to minimize the risk of specific sectors and specific companies, such as investing in stocks.

Diversification, in practice difficult to produce an optimal portfolio, ie the optimal return with low risk. In theory you can accomplish with the efficient frontier method, which produces the most efficient combination of assets. In fact, normally diversified portfolio will produce a composition of lower risk with a moderate return. With diversification, you will not only minimize the risks, but also maintain and enhance your investment in the long run.

Globally, we see that the market movement is determined by the market risk appetite as a whole. For example, when the condition is optimistic, the market tends to like risk, so that puts more money in stocks or currencies like the euro or sterling. Meanwhile, when the condition of pessimism, then the markets tend to avoid risk, so investors fled to the safe-haven investments such as U.S. dollars or gold.

Meanwhile, the market itself is formed from a collection of individuals who have different risk profiles. This risk profile should determine investment strategy. The absence of recognition of good risk profile is one of the factors that triggered the failure of investing. For example, a person who suffered losses and give up investing in the stock, when in fact he was not ready for the `minus` in the portfolio.

Before determining an investment strategy, an investor should first have to identify the risk profile. Actual risk profile can be divided in many categories, but for this article we just limit it as much as five categories.

Conservative
People are being conservative is not like risk. They were not able to tolerate if they reduced investment. They want stability, thus protecting their portfolios from potential losses. Their focus is generally short term. As a consequence of these conservative attitudes, they are also willing to not get high returns from the market.

Besides perhaps because preferences, conservatives may also be caused by the condition of the investor. For example, because it’s quite tight financial conditions and the investment budget is only a little, so they are not strong if it had to bear the loss. Or do investors have retired, so they rely solely on investment income alone. However, instead of investing here is not risky. Because of the small profit, it is potentially undermined by the inflation or tax.

Appropriate investment options for those who are usually conservative profile more allocations in cash or cash equivalents such as deposits, money market, money market mutual funds and some fixed income instruments, fixed income mutual funds and only a small portion placed on the stock. Composition of about 40-50% in cash and cash equivalents, 40-50% in fixed income instruments, and 10-15% in stocks.

Moderately Conservative
This type of investor with a conservative, because they avoid the losses in the short term, but still trying to obtain higher profits in the long run. Investors are still willing to face some level of volatility or losses in the portfolio.

Typically, these types of investors are those who are retiring or have already retired. In addition, those who ever had a bad experience in investing and also include into this category.

Portfolio investment that suitable for this investors is more in cash & cash equivalents, money market mutual funds and fixed income instruments and fixed income mutual funds, with a considerable number of allocations to stocks. Composition of about 30-40% in cash and cash equivalents, 40-50% in fixed income instruments, and 10-20% in stocks.

Moderate
Investors in this risk profile was willing to accept risk in moderate levels. They want a good return, so they are willing to accept some risk. They want portfolio performance better than the market, but they also do not want portfolio fall when bearish market.

Most of the investors included in this classification. The reason for this variety, there are preparing for retirement, there is a set of education funds, funds to buy a house, and so on.

A suitable investment portfolio is balanced between fixed income instruments and fixed income mutual funds with shares instruments. Portfolio composition including approximately 10% cash / cash equivalents, 40% fixed income instruments, and 50% in the stock instruments.

Aggressive moderately
These investors are willing to accept some substantial risks. Their focus is on improving portfolio performance, so willing to face the high volatility in the portfolio. They want to invest quite aggressively, but also do not want to experience many losses in a short time. This type of investor is willing to wait for profits in the period of time long enough, in order to recover losses that may suffer in the short term.

Investment portfolio that works for people with such profiles are a small number of fixed income instruments, and more allocation to the stock instruments. Portfolio composition including about 5% in cash / cash equivalents, 20% in fixed income instruments, while 75% of the stock instruments.

Aggressive
These investors are well aware that they are exposed to great risk, even more than the market risk. They are focused to obtain the portfolio performance above average, so they also are willing to face the high volatility in the market. They are well aware that investments can generate investment does run out, even up to significant losses.

Usually that have aggressive profiles are those who are young and well established. Here, aggressive investors can allocate a number of investments in derivative instruments such as forex, index, or option.

Portfolio that are suitable for aggressive investors who are allocated much more for stocks, and only slightly on fixed income instruments. The appropriate composition of which is 90-95% in shares or derivative instruments, and the remainder in fixed income instruments.

Speculative
This type of investor is more than aggressive, because they are not only aware of the big risks, but rather `find` risks for potential huge profits. For them, investment is increasing their adrenaline activity. Portfolio suitable for speculative investors are more allocation for derivative instruments, a number of stock and very little in fixed income instruments. The appropriate composition of which is approximately 50% in derivative instruments, 45% of shares, and the remainder in fixed income instruments.

So are the various risk profiles and investment strategies accordingly. Which one you enter the category ? Know and recognizing your risk profile first, then determine the appropriate investment strategy!

As a positive economic outlook, or when the economy was booming, so the more dominant in the market is risk appetite. Risk appetite encourage people to do carry trade and invest in riskier assets and higher profits.

Carry Trade, Investment in Risky Assets
What is the carry trade? Carry trade is an activity of arbitration, where investors take out loans in currencies that have low interest rates, to then be invested in assets in the yield that  have higher interest rates in other countries.

For example, investors or speculators to borrow money in Japan that have low interest rates, to then be invested in Brazil, Australia or New Zealand who have a high interest rate. By investing in countries with high interest rates, it is expected that he could earn more profit than if it invested in Japan. Furthermore, the results of these investments brought back to Japan, and partly used to pay debts.

Carry trade is done usually if investors perceive that the value of yen will not appreciate in the future, so they can continue to borrow in yen, and investing abroad. If expectations will turn into yen appreciation, investors would do unwinding carry trade, which we will discuss later.

In addition, investors who do carry trade generally invest in assets that have more risky. The risk assets among stocks, ETF, until more complex derivatives instrument such as index.

Unwinding Carry Trade, Safe Haven Investment
Conversely, when the economy changes to pessimistic outlook, then the dominant is risk aversion, where interest in a decreased risk. Risk aversion encourages investors to do unwinding carry trade and flight to safety into the safe-haven investment.

What is unwinding carry trade? unwinding carry trade is the inverse of the carry trade. In the unwinding carry trade, investors took off position on a currency with high interest rates or risk asset, and move to a safe-haven investment and / or low interest rates.

Unwinding carry trade can be seen for example when the financial crisis. While the global markets falling apart, investors vying to switch to a more investment safe haven, including a commodity, like oil and gold that could be an instrument for hedging against inflation. Bonds also became an investment option, because the price increases when interest rates even lower. High yield currencies such as euros or sterling are falls, and investors turned to safe-haven currency, such as dollar and yen.

What is the effect produced by the unwinding carry trade? Let’s examine. For example, Japanese investors who previously did carry trade in Europe and then to do unwinding carry trade. They returned to Japan with the results of its investment in Europe, then sell the euro currency was in exchange for yen. Because many investors are buying yen, the yen appreciates, and vice versa currencies with higher yields weakened. The reverse is true in carry trade.

Therefore, in investing, then you’ll want to understand how the market conditions of interest in the risks. Then you’ll determine the appropriate investment instruments.

Gold is available in various forms, ranging from bars or bullion, gold coins and gold jewelry. Gold coins, which form of gold like this is one of the other forms of gold bars that have been shaped into pure gold coin. Values and levels were the same as gold bullion. To note is that the gold coin good for investment.

Gold coin investment is like having a money tree that led to continued price advantage because they are always climbing up from year to year. Indeed, Gold would never be eaten fission age. Glory and sparkle still fascinating, including for the investment world. Gold is a unique commodity in limited number in the world and is the only item that can be mined on the surface of the earth. Gold is also an alternative to paper money by purchasing power tend to be timeless and value set by the market.

Societies who want to invest in gold could use some variation of media such as gold bars (bullion), gold coins, gold certificates, gold savings, mutual funds with underlying gold mining companies, as well as commodity futures contracts in gold. When you invest in gold for the short term, usually it will be difficult to get a profit if the shape of gold jewelry. This is because if we are to the store and buy gold jewelry, you have to pay the price of gold plus the cost of manufacture.

Well, when one day you sell it back, then the store would not want to pay the cost of manufacture of gold jewelry. They will only pay the price of gold alone. Another form of gold bars, this type is considered the most profitable. Wherever and whenever you sell, the price always follow the prevailing international prices. The other form of gold investment is the Gold Certificate, For this type, you do not need to have physical gold. So now, you can choose what type of investment that right for you. good luck!

1. Determine the financial goals
An investment must have a purpose. why? because each investment objectives will result in the selection of different investment instruments, the expected investment returns are certainly different and the risk also different too. For short-term goals, focus to the risk and liquidity, it means for short-term, find the product with low risk and high liquidity. Why? because you need the funds quickly. How about for the long term? for long-term, you can choose risky products  and low liquidity, but of course with a high yield. Because the funds that you need are still a bit long so controlling the risks can be more easily maintained.

2. Recognize the investment products
Associated with the objectives above, in investing you should know the product of your choice. An investment product has advantages and disadvantages compared with other products. Long-term product has advantages in high results, while the short-term products have advantages of low risk. Customize it with the goal to be achieved.

3. Adjust with the risk profile
What type of your personal risk? whether you like risk or not? For you are who like with the risk, may not be a problem choosing a risky product. But for you who do not like risk, look for products that do not risk too. Maybe some people like to invest in stocks for long-term investment because it gives a high yield, although full of uncertainty. But some are not. They prefer to invest long term in the product properties such as land or buildings because they feel more certain. In addition about private profile, there are other more important considerations such as age and status. Your age is high enough, you should not invest in high-risk product. And vice versa.

Well, I hope some few ways above can help you to find the right investment and good luck!