Demystifying Risk-On Assets: A Beginner's Guide

What are risk-on assets? Here is a guide for beginner's to demystify risk-on assets.

There are two primary asset classes: risk-on and risk-off. This is a beginner’s guide to demystifying risk-on assets.

What Is Risk-On Investing?

Risk-on investing depicts the financial market environment. Investors take on more risk in a risk-on environment, with the goal being a higher return on their investment.

Risk-on periods in the financial markets are optimistic and bullish. Generally, investors are more willing to designate capital to assets that can offer a higher return on their investment.

In a risk-on market environment, investors worry less about investment safety. Their primary goal in a risk-on period is to maximize profits.

What Are Risk-On Assets?

Risk-on assets are asset classes that encourage investors to take more risk to achieve a higher return on investment. Types of investments that are considered risk-on are:

• Stocks that offer a higher profit-to-earnings ratio (PE)

• Emerging market indexes and stocks

• Commodities (crude oil and industrial metals)

• Real estate

• High-yield bonds

• Certain currencies (Canadian dollar, Australian dollar)

• Cryptocurrencies and NFTs

Risk-on assets are attractive for their high risk and reward compared to risk-off assets.