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INTRODUCTION
Investing is not gambling or speculation – It is taking reasonable risks in order to reap steady rewards.
Investing is a method of purchasing assets in order to gain profit in the form of predictable income – in the form of dividends, interests, rentals etc – and appreciation over the long term.
WHY INVEST..?
You should invest so that your money grows and shields you against rising inflation. The rate of return on investment should be greater than the rate of inflation, leaving you with a nice surplus over a period of time. Whether your money is invested in stocks, bonds, mutual funds, certificate of deposit (CD) or property, the end result is to create wealth for retirement, marriage, college fees, vacation, better standards of living or to just pass on the money to the next generation.
Also it is exciting to review your investment returns and to see how they are accumulated at a faster rate than your salary!
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WHEN TO INVEST..?
The sooner the better…
By investing into the market right away, you allow your investment more time to grow, where by the concept of compounding interest swells your income by accumulating your earnings and dividends.
The three golden rule for investment are
1. Invest Early
2. Invest Regularly
3. Invest for Long Term
It may be tempting to wait for the “best time” to invest – But risks of waiting may far outweigh the potential rewards of nvesting. Compounding has huge powers – compounding is growth through reinvestment of returns earned on your savings. Compounding has a snowball effect, because you earn income not only on the principal but also on the re-investment of dividend / earnings accumulated over the years.
The power of compounding is one of the most compelling reasons for investing as soon as possible.
The earlier you start investing and continue to do so consistently, the more money you will make.
The longer you leave your money invested and at a higher interest rate, the faster your money will grow.
Stocks are one of the best investment tools – the general upward momentum of economy mitigates the stock market volatility and the risks of losses.
HOW MUCH TO INVEST..?
The amount you invest depends on factors such as
1. Your Risk Profile
2. Your Time Horizon
3. Saving Mode
WHERE TO INVEST..?
Many investment options are available in a mature market.
1. Equities (Stocks)
2. Bonds
3. Mutual Funds
4. Fixed Deposit
5. Property |
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The investment options before you are many. Pick the right investment tool based on the risk profile, circumstances, time zone available etc. If you feel market volatility is something you can live with, then buy stocks. However, if you do not want to risk the volatility and simply desire some income, then you should just consider fixed income securities.
Remember: The risks and returns are directly proportional. Higher the risks, greater the returns!
EQUITIES
Investing in shares of companies is investing in Equities. Stocks can be bought /sold from exchanges (secondary market) or in the primary market via IPOs (Initial Public Offering). Stocks are the best long-term investment options wherein the market volatility and the resultant risks of losses, if given enough time, is mitigated by the general upward momentum of the economy.
Equities generate two distinct streams of revenues –
1. Divident : The periodic payment made out of the company’s profits are termed as dividends
2. Growth : The price of a stock appreciates based on the growth made by the company resulting in capital appreciation.
BONDS
Bond is a fixed income (debt) instrument issued for a period of more than one year with the purpose of raising capital. Bonds are sold by governments, corporations and similar institutions.
A bond is generally a promise to repay the principal along with fixed rate of interest on a specified date, called as the maturity date.
Other fixed income instruments include bank fixed deposits, debentures, preference shares etc.
CERTIFICATE OF DEPOSIT
These are short – to – medium term interest bearing debt instruments offered by banks. These are low-risk, low-return instruments. There is usually an early withdrawl penalty. Savings Account, Fixed Deposits, Recurring Deposits are some of them.
MUTUAL FUND
Mutual Funds are open and close ended funds operated by an investment company which raises money from the public and invests in a group of assets, in accordance with a stated set of objectives. It is a substitute for those who are unable to invest directly in equities or debt because of resource, time or knowledge constraints.
Benefits include diversification and professional money management. Shares are issued and redeemed on demand, based on the fund’s nets asset value, which is determined at the end of each trading session.
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CASH EQUIVALENTS
These are highly liquid and safe instruments which can be easily converted into cash. Treasury bills and money market funds are a couple of examples of cash equivalents.
PROPERTY (REAL ESTATE)
Real estate that generates income or is otherwise intended for investment purposes rather than as a primary residence. It is common for investors to own multiple pieces of real estate, one of which serves as a primary residence, while the others are used to generate rental income and profits through price appreciation.
Common examples of investment properties are apartment buildings and rental houses, in which the owners do not live in the residential units, but use them to generate ongoing rental income from tenants. Those who invest in real estate also expect to generate capital gains as property values increase over time.
Property is one of the safest and sure instruments of investment. The golden rule of investing in real estate is location, location, location.
GOLD and other COMMODITIES
Commodity trading is trading in commodity derivatives (futures or options). In other words, if you are keen at taking a buy/sell position based on the future performance of commodities like gold, silver, agricultural commodities, metals, crude etc; then you could do so by trading in commodity derivatives.
Commodity derivatives are traded at the commodity exchanges. Gold, Silver, Agri-Commodities including grains, pulses, spices, oils and oilseeds, metals and crude are some of the commodities that the exchanges deal in.
ART, CRAFT, ANTIQUES
These are Long-Term investment options. Long Term = a holding period of 10 years or more.
The golden rules of investing in Art, Craft and Antiques are
1. Buy the best you can afford - The best works of an artist appreciates much more than a not so good work
2. Buy signed objects – This is most important for resale
3. Buy items in perfect condition
4. Maintain items in perfect condition
5. Do Not Buy at the top |
