Where to Invest?
In this second part of the series on Investment we discuss the various avenues of investments where one can park her money for good use.
We have already seen the importance of investments and how it is a great tool for making your money work hard for you. Now let’s look at the options that are available for us to do that.
The nature of investments one chooses depends on two factors:
- One is the stomach to take risks or the risk appetite of the individual. It decides how much risk an investor is willing to take for her money to grow. Needless to say that in any investments one rule reigns supreme: The greater the risk the higher the gains (or the losses). The risk appetite is the supreme criterion for deciding any type of investments.
- The other factor is the investment goal. The basic reason why a person is planning an investment and what she expects out of it. A 30 year old executive has the time on her side and thus can choose the investment option which gives high growth as the investment isn’t supporting her, while a 70 year old retiree would want to choose an option which safeguards her hard earned money and gives steady assured returns as this is what her main income is.
If you noticed both the factors are closely linked as a high risk investment option would have the potential to give high returns (or high loses) while an assured return would be promised only by an investment option which isn’t much inclined to risk taking.
So before one is certain about the nature of investments one wants to make, the risk appetite and the investment goal should be made clear first. Ask yourself:
- Am I willing to take calculated risk?
- Is Time on my side?
- Is this investment my supplementary income?
- I don’t care about an assured income, I want to see my money grow and grow fast.
- Is this my retirement plan?
Once you are sure about your answer to these questions, you can move onto deciding which investment plan you want to go ahead with. The market provides investment option for every risk appetite category.
- Low risk and low return
Investment options available in this category are Bonds offered by stable governments, Other Debt instruments where in a party borrows your money and promises an assured sum after a fixed period of time. Such instruments offer low returns on money but the returns are virtually guaranteed.
If the answers to most of the above mentioned questions are in the negative then this option suits you the best.
- High risk and high return
The instruments in this category love to take risks and compound money in leaps. It consists of instruments like Equities, Derivatives, Forex trading etc. These instruments have much more rewarding potential than the other instruments discussed as they are not at all risk averse. Practically they don’t assure any returns and if your luck is really bad even your principal may vanish in thin air. But that’s not the case always. As I discussed in my last article these instruments must be handled with care and you must know what you are getting into. Moreover they require time and effort from the investor to provide good results.
If the answers to any of the above mentioned questions are in the affirmative then you surely are not risk averse, go and choose this option as your medium.
- The Moderates
I call it the moderates as the instruments under this category provide the middle path of the other two categories. It consists of a marvelous option called Mutual Funds. This Instrument is a highly flexible investment option, which provides the elements of both the worlds. Many types of funds available in the market take your money and either promises you steady income or high returns depending on the risk taking capability of the fund.
They neither require your time or effort from your part for your money to grow. Needless to say the fund managers take a part of that investment from you as their fees. Most mutual funds, given time and if managed properly give handsome returns to the investors.
All the instruments discussed above have been designed for capital appreciation and what suits an investor’s needs is a totally personal decision. Whatever investment decision an investor makes a positive attitude and an emotional detachment from the investments goes a long way in deciding the success one has. But more on this later!
Having mentioned these options I would like to reiterate that these are only my views and an attempt to explore the wide world of investments and it might not be treated as exhaustive under any circumstance. It’s only an attempt to get things started with those who might have a negative view on investments or for those who might still be searching about where to start.
If you found this article helpful do post a comment or two about what you thought about it