When buying equities, an investor is buying a stake in a company. The price of an equity, or share price, is driven by supply and demand on the stock exchange. Many companies pay dividends to their shareholders once or twice a year. The return investors can earn on equities consists of share price gains and dividends.
As the financial results of the companies in which you invest can vary greatly, the performance of the equities in your portfolio may also fluctuate strongly. Equities are a high-risk investment.
Bonds are debt securities issued by institutions, governments or companies. Each year, investors in bonds receive interest, the coupon rate (a bond’s coupon is the interest rate on the face value of the bond paid until maturity). This interest rate is fixed throughout the bond’s life. There is always a risk that the party borrowing the money (the issuer) will not pay the coupon or pay back the principal. The better the quality of the bond issuer, the lower the risk. Trading in bonds takes place on the stock exchange. This can influence bond prices. The market value of bonds can rise and fall, depending on interest rate developments. The return investors can earn on bonds consists of changes in the market price of a bond and its coupon.
Liquid assets include cash on hand and current account or savings account balances. The risk of investing in liquid assets is low. There is, however, a risk that the interest you receive on your liquid assets does not compensate for inflation and taxes.
If stock market prices fall, the value of your investments will drop, and vice versa. This risk is mainly influenced by the global economy, such as economic growth or decline.
The risk that you are unable to easily sell certain investments because there are few buyers. This risk is limited if you invest in listed equities or highly liquid government bonds.