IT IS not always true that you have to take big risks to yield high returns. Some investments give you a better deal than others.

TEXT/ILLUSTRATION: LARRY HAVERKAMP AND MAROO

Here is everything you need to know about risks and returns for every type of investment. See the corresponding numbers in the chart.

1 FIXED DEPOSITS: Risks for fixed deposits (FD) have dropped to zero ever since the economic crisis pushed the Government to guarantee all bank deposits until 31Dec, 2010.

Foreign bank deposits usually carry higher risks but yield higher returns. The government guarantee, however, lowers the risks to zero and they continue to pay more than local banks, sometimes twice as much.

For example, $1,000 in a six-month FD pays only 0.25 per cent at DBS versus 0.625 per cent at Maybank.

2 CPF: Depending on your balance, CPF pays a risk-free 2.5, 3.5, 4 and 5 per cent for ordinary and special accounts. It is the best deal in town.

3 BONDS: (a) Low risk - Government bonds have no default risk, but prices fluctuate for the long-term bonds, like over six months.

(b) Medium risk - AA corporate bonds yield 3 to 5 per cent.

(c) High risk - US-dollar junk bond funds yield around 15 per cent with default rates nearly as high.

4 YOUR HOME: Where else can you borrow so much for so little to invest for so long? It is also the only investment you can live in. When you include the savings on rent, it gives the highest return available.

A rule of thumb is monthly loan payments should be one-third to half of your gross income, including CPF.

My advice is, 'Go for the max'. You will never find a better investment.

5 STOCKS: A diversified portfolio of shares isn't as much fun as a home, and the market's ups and downs can rattle your nerves. With just 15counters, however, you can smooth out most of the market's fluctuations and earn around 10 per cent per year. Not bad.

6 UNIT TRUSTS: It further diversifies your portfolio into hundreds of shares, which reduces the risk of any one firm going bankrupt.

The problem is if you earn, say, 10 per cent, the fund will keep 3 to 4 per cent. That's a lot.

Unit trusts hide many of their expenses like foreign taxes, currency conversion costs and brokerage commissions. These are deducted directly from the yield, so you will never know that you pay them.

7 CREDIT AND EQUITY-LINKED NOTES: They were at the centre of the recent storm over structured products like Minibonds. We invested billions and lost hundreds of millions of dollars.

Issuing banks knew that yields above 10 per cent would appear risky, so they reported only the net returns, after expenses. This left yields of around 5 per cent, which looked safe. Many investors fell for it.

8 DERIVATIVES: It includes futures, options, warrants and swaps. These are not physical assets but counterparty bets which expire, usually after a few months.

It is like gambling, in that one party's gain is the other's loss, making it zero-sum before commissions for most retail traders.

9 GAMBLING: Most popular are 4-D, Toto, horses and casino games. Gambling is similar to derivatives but the house takes a bigger commission, thereby increasing the average loss. It is the worst of all possible investments.

10 ALTERNATIVE INVESTMENTS: Examples are raw land, wine, art and antiques. These are interesting and fun but are thinly traded, hard to sell and rarely pay off as promised.

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