Offshore Investment Funds: Understanding The Risks
The first type of offshore investment fund is low-risk; this fund invests predominantly in investments such as bonds or the equities of blue-chip companies. In a low-risk fund it is fairly unlikely that you would lose your capital but on the other hand don't expect record-breaking profits. A return congruent with that of a bank may be expected. Some offshore investment funds rated as low-risk are even accompanied by a capital guarantee, but in these cases returns lower than that of a bank are commonplace. A second, medium-risk fund invests in a more diversified portfolio. Whilst still investing in bonds or equities of blue-chip companies, some other more speculative investments are also made. These more speculative investments may be potential up-and-coming new technologies or emerging markets. The types of investments undertaken would of course be outlined under the fund's objective. The return to be expected on a fund with this type of risk rating can be anywhere from bank rates to significantly higher than that. It should also be noted that an investment in this type of fund could see the value of your investment fall, and the investor might receive a negative return on investment. An offshore investment fund with a medium-risk rating will experience a degree of volatility and have possible returns ranging from -20% to +30% or more. With this type of fund, you won't get rich quickly - but you could get rich safely in the long term. Finally, high-risk offshore investment funds invest quite aggressively, seeking to make the most out of any given situation. It is very rare to find bonds contained in the portfolio of a fund with a high-risk rating. A more speculative investment approach is used and it is quite common to find up-and-coming new technologies or emerging markets held in their portfolios. These offshore investment funds are definitely not for the faint hearted, as a gain of 70% for a month may be followed by a loss of 90% the following month. Due to their nature, these offshore investment funds experience an exceptionally high degree of volatility and on occasion an investment in this type of fund might more closely resemble gambling than investing! Although it is still good to hold a small amount in offshore investment funds of this type, you certainly wouldn't count on it to pay the rent or mortgage. One final comment on the risk ratings applied by different offshore investment funds: while it is true that the higher the fund's risk rating, the more the risk that is associated with it this can be offset by the amount of investment knowledge an investor has. Think of it this way: crossing the road can be a very risky undertaking if you don't know how to do so correctly, but once you know which way the cars are coming from, you know where to look. Taking the analogy a step further, once you know about pedestrian crossings and traffic lights, the level of risk becomes almost negligible. The same is true of investing. With the information contained in this article, you'll be better able to understand the risks associated with particular offshore investment funds to play the market and find the best home for your money.
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