Find us on Google+ My Sensible Cent: Understanding Investment and its Risk

Tuesday, September 18, 2012

Understanding Investment and its Risk

Most of us can earn money, but saving and investments is what counts the most. In today's modern world investing has become an important thing. In this post, I will share some of the things to consider before you invest your hard earned  money.

You should always make investments in a sane and safe manner. Before you decide to invest your hard earned money, remember to set aside your daily and monthly expenditure. You should also set aside all the necessary amount of money to cater for your bills, at the end of every month. Only a certain percentage should go to investments. Your short term and long term investments should not negatively affect your daily lifestyle or even liquidity. But remember you will have to cut down your spending, if you really want to meet your investment goals every month.

Investments methods can be classified according to the time duration over which the yield may be expected and according to the degree of risk involved.
This means you have an option to either choose between high risk and low risk or between short term and long term investment risk.
The different types of investments and their risk
Generally, investment can be categorized under financial and non-financial instruments.
*Financial instruments:Equities. They are traded in the stock market. When you buy your stocks you become a partial owner of that business. This is a good long term investment option.Bonds. When you buy a bond, it's like you are lending money to government or a private company. You will receive your interest on money. Bonds are safe, with a stable income and a low risk.Deposits. A common way of getting surplus funds is by investing in government schemes, recurring deposits ,banks etc. however the return is low since the risk is low

*Non-financial instruments
Real Estate. It's a profitable investment option since markets have been predicted to go up in the near future.Gold. Despite the market's going down gold prices have risen making it a good investment option.

Note: All investments should always be done keeping in mind the age of the investor. A younger person can take a bigger risk compared to an older person. However, "never risk more than you can afford to loose."
You must always do a comprehensive research and study on the options available before you invest in them. As I always say, invest your time before you invest your money. Investment is a risky undertaking, but again, you can't get anything if you don't risk. This applies to money and life in general.

No comments:

Post a Comment