Difference between Risk-on and Risk-off assets: analysis on Waxoo.fr.

What is the difference between risky assets and risk-free assets?

Investors are constantly looking for ways to diversify their portfolios and minimise risk. In this quest, it is essential to understand the difference between risky and risk-free assets.

Risky assets, also known as risk-on assets, present a higher level of risk. These are investments that are more sensitive to market fluctuations and can lead to significant losses. Examples of risky assets include equities, high-yield corporate bonds, commodities and emerging currencies.

These assets are generally considered risky because of their volatility. They can rise and fall sharply in response to economic conditions and world events. Investors who are prepared to take greater risks invest in these assets in the hope of achieving higher returns.

On the other hand, risk-free assets, also known as risk-off assets, are safer and more stable investments. These are assets with a minimal risk of capital loss. Examples of risk-free assets include government bonds, treasury bills and bank deposits.

These assets are considered risk-free because they are generally backed by solid financial entities, such as governments. They offer lower returns than risky assets, but they are also less likely to suffer significant losses.

The difference between risky assets and risk-free assets is therefore mainly based on the level of risk associated with each type of investment. Risky assets offer potentially higher returns, but they are also more likely to suffer significant losses. Risk-free assets, on the other hand, offer lower returns, but are more stable and less likely to suffer losses.

It is important for investors to diversify their portfolios by including both risky and risk-free assets. This reduces overall portfolio risk and allows investors to take advantage of opportunities for higher returns while minimising potential losses.

In conclusion, the difference between risky assets and risk-free assets lies in the level of risk associated with each type of investment. Risky assets offer higher returns but are more volatile, while risk-free assets offer lower returns but are more stable. A balanced mix of both types of assets is essential for prudent portfolio management.