Types of investments with built-in puts or similar safety features
"An index annuity is almost the same as Indexed Universal Life, except the equity-index annuity is an investment with a guaranteed minimum return, with sometimes a higher return that is a function of the gain in the stock market, but is not associated with a life insurance policy.  After a time, you can convert the EIA to a lifetime income (the annuity part) or just cash it out.  They often are very complicated, but are constructed by combining bonds with index options (puts) just like indexed universal life. Unfortunately these tend to have high fees and/or commissions, and high (early) surrender charges, which can make them a poor investment.  Of course you could just ""roll your own"" by buying bonds and puts FINRAS bulletin on EIAs, pdf warning. Here's a description of one of these securities: pdf." Many mutual funds include such mechanisms. However, the higher fees for those funds (when compared to simple index funds) may cancel out any improvement the hedging strategy offers.
"It sounds like you want a place to park some money that's reasonably safe and liquid, but can sustain light to moderate losses. Consider some bond funds or bond ETFs filled with medium-term corporate bonds. It looks like you can get 3-3.5% or so. (I'd skip the municipal bond market right now, but ""why"" is a matter for its own question). Avoid long-term bonds or CDs if you're worried about inflation; interest rates will rise and the immediate value of the bonds will fall until the final payout value matches those rates." Yes, there are some real dangers in having your money locked into an investment. Those dangers are well worth thinking about and planning for. Where you are going off the rails is acting like those are the only dangers to your money, and perhaps having an exaggerated idea of the size of the dangers. It is an excellent idea to keep an emergency fund with a few months living expenses in a readily accessible savings or checking account. However, a standard retail savings account is always going to pay less in interest then you are loosing through inflation. We're living in a low-inflation period, but it's still continuously eating away at the value of your savings. It makes sense to accept the danger of inflation for your emergency fund, but probably not for your retirement savings. To reduce the hazards of inflation, you need to find an investment that has some chance of paying more than the inflation rate. This is inevitably going to mean locking up your money for some period of time or accepting some other type of risk. There is no guaranteed safe path in the world. You can only do your best to understand the risks you are running. As an example, you could put your savings in a CD rather than a vanilla savings account. A CD these days won't pay much in interest, but it will be more than a savings account. However, you have to commit to a term for the CD. If you take your money out early you will have to pay a penalty. How much of a penalty? In the worse case it could be in the neighborhood of 4% of the amount you withdraw. So, yeah if you deposit $10,000 in a 5-year CD and end up needing it all back the very next day, you could end up paying the bank $400.  If you withdraw money from a 401k before you are 59 1/2, you will pay a 10% penalty, and you will have to have income tax withheld on the amount you withdraw. On the other hand, if your employer matches 100% of your 401k contributions, you could be throwing away 50% of your possible retirement savings because of your fear of the possibility of a 10% loss! In addition 401k plans do have some exceptions to the early withdrawal penalty. There are provisions for medical emergencies and home purchases for example. However, the qualifications are not entirely straight-forward, and you should read up on them before enrolling. The real answer to your fears is planning. Figure out your living expenses. Figure out how much you want in an emergency fund. Figure out when you will be wanting to buy a house, have a child, or go back to school. Set aside the savings you'll need for all those, and then for the remainder of your money you can consider long term investments with some confidence that you probably won't need to face the early withdrawal penalties. "This is basically the short-term/long-term savings question in another form: savings that you hope are long-term but which may turn short-term very suddenly. You can never completely eliminate the risk of being forced to draw on long term savings during a period when the market is doing Something Unpleasant that would force you to take a loss (or right before it does Something Pleasant that you'd like to be fully invested during). You can only pick the degree of risk that you're willing to accept, balancing that hazard of forced sales against the lower-but-more-certain returns you'd get from a money market or equivalent. I'm considered a moderately aggressive investor -- which doesn't mean I'm pushing the boundaries on what I'm buying (not by a long shot!), but which does mean I'm willing to keep more of my money in the market and I'm more likely to hold or buy into a dip than to sell off to try to minimize losses. That level of risk-tolerance also means I'm willing to maintain a ready-cash pool which is sufficient to handle expected emergencies (order of $10K), and not become overly paranoid about lost opportunity value if it turns out that I need to pull a few thou out of the investments. I've got decent health insurance, which helps reduce that risk. I'm also not particularly paranoid about the money. On my current track, I should be able to maintain my current lifestyle ""forever"" without ever touching the principal, as long as inflation and returns remain vaguely reasonable. Having to hit the account for a larger emergency at an Inconvenient Time wouldn't be likely to hurt me too much -- delaying retirement for a year or two, perhaps. It's just money. Emergencies are one of the things it's for. I try not to be stupid about it, but I also try not to stress about it more than I must." "Congratulations on a solid start. Here are my thoughts, based on your situation: Asset Classes I would recommend against a long-term savings account as an investment vehicle. While very safe, the yields will almost always be well below inflation. Since you have a long time horizon (most likely at least 30 years to retirement), you have enough time to take on more risk, as long as it's not more than you can live with. If you are looking for safer alternatives to stocks for part of your investments, you can also consider investment-grade bonds/bond funds, or even a stable value fund. Later, when you are much closer to retirement, you may also want to consider an annuity. Depending on the interest rate on your loan, you may also be able to get a better return from paying down your loan than from putting more in a savings account. I would recommend that you only keep in a savings account what you expect to need in the next few years (cushion for regular expenses, emergency fund, etc.). On Stocks Stocks are riskier but have the best chance to outperform versus inflation over the long term. I tend to favor funds over individual stocks, mostly for a few practical reasons. First, one of the goals of investing is to diversify your risk, which produces a more efficient risk/reward ratio than a group of stocks that are highly correlated. Diversification is easier to achieve via an index fund, but it is possible for a well-educated investor to stay diversified via individual stocks. Also, since most investors don't actually want to take physical possession of their shares, funds will manage the shares for you, as well as offering additional services, such as the automatic reinvestments of dividends and tax management. Asset Allocation It's very important that you are comfortable with the amount of risk you take on. Investment salespeople will prefer to sell you stocks, as they make more commission on stocks than bonds or other investments, but unless you're able to stay in the market for the long term, it's unlikely you'll be able to get the market return over the long term. Make sure to take one or more risk tolerance assessments to understand how often you're willing to accept significant losses, as well as what the optimal asset allocation is for you given the level of risk you can live with. Generally speaking, for someone with a long investment horizon and a medium risk tolerance, even the most conservative allocations will have at least 60% in stocks (total of US and international) with the rest in bonds/other, and up to 80% or even 100% for a more aggressive investor. Owning more bonds will result in a lower expected return, but will also dramatically reduce your portfolio's risk and volatility. Pension With so many companies deciding that they don't feel like keeping the promises they made to yesterday's workers or simply can't afford to, the pension is nice but like Social Security, I wouldn't bank on all of this money being there for you in the future. This is where a fee-only financial planner can really be helpful - they can run a bunch of scenarios in planning software that will show you different retirement scenarios based on a variety of assumptions (ie what if you only get 60% of the promised pension, etc).  This is probably not as much of an issue if you are an equity partner, or if the company fully funds the pension in a segregated account, or if the pension is defined-contribution, but most corporate pensions are just a general promise to pay you later in the future with no real money actually set aside for that purpose, so I'd discount this in my planning somewhat. Fund/Stock Selection Generally speaking, most investment literature agrees that you're most likely to get the best risk-adjusted returns over the long term by owning the entire market rather than betting on individual winners and losers, since no one can predict the future (including professional money managers). As such, I'd recommend owning a low-cost index fund over holding specific sectors or specific companies only. Remember that even if one sector is more profitable than another, the stock prices already tend to reflect this. Concentration in IT Consultancy I am concerned that one third of your investable assets are currently in one company (the IT consultancy). It's very possible that you are right that it will continue to do well, that is not my concern. My concern is the risk you're carrying that things will not go well. Again, you are taking on risks not just over the next few years, but over the next 30 or so years until you retire, and even if it seems unlikely that this company will experience a downturn in the next few years, it's very possible that could change over a longer period of time. Please just be aware that there is a risk. One way to mitigate that risk would be to work with an advisor or a fund to structure and investment plan where you invest in a variety of sector funds, except for technology. That way, your overall portfolio, including the single company, will be closer to the market as a whole rather than over-weighted in IT/Tech. However, if this IT Consultancy happens to be the company that you work for, I would strongly recommend divesting yourself of those shares as soon as reasonably possible. In my opinion, the risk of having your salary, pension, and much of your investments tied up in the fortunes of one company would simply be a much larger risk than I'd be comfortable with. Last, make sure to keep learning so that you are making decisions that you're comfortable with. With the amount of savings you have, most investment firms will consider you a ""high net worth"" client, so make sure you are making decisions that are in your best financial interests, not theirs. Again, this is where a fee-only financial advisor may be helpful (you can find a local advisor at napfa.org). Best of luck with your decisions!" There are many ways of investing either directly or indirectly in oil: all of these options are ways to invest in an expected change in the price of oil at various degrees of directness and risk profiles. Investing in derivative or derivative-like products such as futures and CFDs is very risky and requires a good degree of sophisticated knowledge to manage. No. Such companies don't exist. Derivative instruments have evolved over a period and there is a market place, stock exchange with members / broker with obligations etc clearly laid out and enforceable. If I understand correctly say the house is at 300 K. You would like a option to sell it to someone for 300 K after 6 months. Lets say you are ready to pay a premium of 10K for this option. After 6 months, if the market price is 400 K you would not exercise the option and if the market price of your house is 200 K you would exercise the option and ask the option writer to buy your house for 300 K. There are quite a few challenges, i.e. who will moderate this transaction. How do we arrive that house is valued at 300K. There could be actions taken by you to damage the property and hence its reduction in value, etc. i.e. A stock exchange like market place for house is not there and it may or may not develop in future. There are many stategies with options that you have listed. The one I use frequently is buy in the money calls and sell at the money staddles. Do this ONLY on stocks you do not mind owning because that is the worse thing that can happen and if you like the company you stand less of a chance of being scared out of the trade. It works well with high quality resonable dividend paying stocks. Cat, GE, Mrk, PM etc. Good luck I will attempt to answer three separate questions here: The standard answer is that an emergency fund should not be in an investment that can lose value.  The safest course of action is to put it in a savings account or other very low risk investment somewhere. This question becomes: can a reasonable and low risk investment in Sweden be comparable to or better than a low risk investment in Brazil? Inflation in Brazil has averaged a little less than 6% over the last 10 years with a recent spike up above 8%.  A cursory search indicates interest rates on savings accounts in Brazil are outpacing inflation so you might still expect a positive return on money in a savings account there. By contrast, Sweden's inflation rate has been around 1% over the last 10 years and has hovered around 0 or even deflation in recent years.  Swedish interest rates for savings accounts right now are very low, nearly 0%.  Putting money in a savings account in Sweden would likely hold its value or lose a slight amount of value. Based on this, you might be better off leaving your emergency fund invested in BRL in Brazil. The answer to this a little unclear.  The Brazilian stock market has been all over the place in the last 10 years, with a slight downard trend in recent years.  In comparison, Sweden's stock market has shown fairly consistent growth in spite of the big dip in 2008.  Given this, it seems like the fairest comparison would your current 13% ROI investment in Brazil vs. a fund or ETF that tracks the Swedish stock market index. If we assume a consistent 13% ROI on your investment in Brazil and a consistent inflation rate of 6%, your adjusted ROI there would be around 7% per year. The XACT OMS30 ETF that tracks the Swedish OMS 30 Index has a 10 year annualized return of 9.81%.  If you subtract 0.8% inflation, you get an adjusted ROI 9%. Based on this, Sweden may be a safer place for longer term, moderate risk investments right now. I think your premise is slightly flawed. Every investment can add or reduce risk, depending on how it's used. If your ordering above is intended to represent the probability you will lose your principal, then it's roughly right, with caveats. If you buy a long-term government bond and interest rates increase while you're holding it, its value will decrease on the secondary markets. If you need/want to sell it before maturity, you may not recover your principal, and if you hold it, you will probably be subject to erosion of value due to inflation (inflation and interest rates are correlated). Over the short-term, the stock market can be very volatile, and you can suffer large paper losses. But over the long-term (decades), the stock market has beaten inflation. But this is true in aggregate, so, if you want to decrease equity risk, you need to invest in a very diversified portfolio (index mutual funds) and hold the portfolio for a long time. With a strategy like this, the stock market is not that risky over time. Derivatives, if used for their original purpose, can actually reduce volatility (and therefore risk) by reducing both the upside and downside of your other investments. For example, if you sell covered calls on your equity investments, you get an income stream as long as the underlying equities have a value that stays below the strike price. The cost to you is that you are forced to sell the equity at the strike price if its value increases above that. The person on the other side of that transaction loses the price of the call if the equity price doesn't go up, but gets a benefit if it does. In the commodity markets, Southwest Airlines used derivatives (options to buy at a fixed price in the future) on fuel to hedge against increases in fuel prices for years. This way, they added predictability to their cost structure and were able to beat the competition when fuel prices rose. Even had fuel prices dropped to zero, their exposure was limited to the pre-negotiated price of the fuel, which they'd already planned for. On the other hand, if you start doing things like selling uncovered calls, you expose yourself to potentially infinite losses, since there are no caps on how high the price of a stock can go. So it's not possible to say that derivatives as a class of investment are risky per se, because they can be used to reduce risk. I would take hedge funds, as a class, out of your list. You can't generally invest in those unless you have quite a lot of money, and they use strategies that vary widely, many of which are quite risky. I am not aware of a single instrument that encapsulates what you are after; but the components do exist. At least in Canada, there are many Options traded on the Montreal Exchange that are based on Toronto ETFs.  All the standard TSX ETFs are represented, as well as some of the more exotic.  With a regular investment account approved for Options you should be able to do what you want. In a parallel vein, there are also double down and up ETFs.  One such example are the Horizons BetaPro series of ETFs.  They are designed to return double the market up or down on a daily basis and reset daily.  They do need to be watched closely, however. Good Luck An alternative options strategy to minimize loss of investment capital is to buy a put, near the money around your original buy price, with a premium less than the total dividend. The value of the put will increase if the stock price falls quickly. Likely, a large portion of your dividend will go towards paying the option premium, this will however ensure that your capital doesn't drop much lower than your buy price. Continued dividend distributions will continue to pay to buy future put options. Risks here are if the stock does not have a very large up or down movement from your original buy price causing most of the dividend to be spent on insuring your position. It may take a few cycles, but once the stock has appreciated in value say 10% above buying price, you can consider either skipping the put insurance so you can pocket the dividend, or you can bu ythe put with a higher strike price for additional insurance against a loss of gains. Again, this sacrifices much of the dividend in favor of price loss, and still is open to a risk of neutral price movement over time. Thanks. Just to clarify I am looking for a more value-neutral answer in terms of things like Sharpe ratios. I think it's an oversimplification to say that on average you lose money because of put options - even if they expire uselessly 90% of the time, they still have some expected payoff that kicks in 10% of the time, and if the price is less than the expected payoff you will earn money in the long term by investing in put options (I am sure you know this as a PhD student I just wanted to get it out there.)I guess more formally my question would be are there studies on whether options prices correspond well to the diversification benefits they offer from an MPT point of view. I wanted to know how safe is such investment with online banks vis-a-vis regular banks? As far as I know, neither money market accounts nor savings accounts have any investment risk (within reason) since both are insured by the FDIC. Note that this is not necessarily the case with money market funds. is their any downside to such investments? Yes, there are a few. I believe the two biggest ones  are: "You need to interpret ""security"" appropriately in Wikipedia's definition.  You should think of it as saying: to be long in a put, means the holder of the position owns the put   and will profit if the price of the put goes up And what makes the price of the put go up?  -- the price of the underlying stock going down." "I think what you really want to look into is put options. You can essentially replicate the same thing, without worrying about margin calls. Check out this site http://www.fundamentalfinance.com/options/options-basic-charts.php a quick glance seems to show it to be pretty good.  The way you would limit downside risk is to buy a put option, allowing you to sell anytime within the next n months for the current price (assuming american). This will allow you to limit downside risk, however, potential profits do go down due to fees as another answer suggests this could be cost prohibitive. This type of strategy is also known as a ""protective put"". http://www.optionseducation.org/strategies_advanced_concepts/strategies/protective_put.html If you wanted to be more refined you could use Ak's bands, although you have to be looking for that specific outcome. Also due to complexity, this can become a taxing (in terms of time invested) and risky (if you are wrong) investment. Either way I think you need to study payoff curves a little more."