Passive investors are less inclined to make market position changes. They tend
to "buy and hold" for a longer period of time.
A perfect risk-expected rate of return relationship can be seen when comparing financial
instruments such as bonds, stocks, and money market instruments.
Risk-averse investors would quite be likely happy to choose stable instruments such
as the traditional fixed deposits and bonds. Saving with banks and investing with
bonds issued by the governments virtually offer little or no risks compared to investing
in the stockmarket which is more speculative and risky.
It is very unlikely that the government will default its payment obligations but
corporate bonds to offer some default risks. This where rating companies such as
the Rating Agency Malaysia Berhad (RAM) and Malaysian Rating Corporation Berhad (MRCB)
will play a key role in determining the credit worthiness of those companies issuing
bonds.
"Zero" risks investments normally produce performance with slow returns
over a longer period of years. Generally, these two form of investments are not popular
among Malaysians who are normally fast-money oriented and prefer to invest in speculative
stocks.
In Malaysia, stocks offer the greatest risk dimension but attract the largest portion
of local investors. The "speculative-nature" of stocks listed on the Second
Board may produce instant millionaires but have also caused many overnight bankruptcies
among others.
Investing for a shorter time in the hope of a very huge return or a windfall is very
much like gambling - a game of chance. Your fate is dependent on the roll of a dice.
Certainly it is not a rational way to invest your hard-earned money. Although hard
to resist fast-gains, you should only undertake this form of investment when you
have a large supply of surplus funds.
