Safe Investment Practices

What are you exactly looking for: Huge profits or marginal profits? You have money to invest ; Investing wisely can make you rich. The important things any investor needs to know are Risk, Duration, Returns and Liquidity.

Risk

Most people would like to get the best out of an investment. With every kind of investment there is some risk involved and knowing a few risks would help you manage the risks better.

•Inflation risk is your deposit keeping up with inflation. You may invest in a savings account, or certificate of deposit or bonds. When there is inflation in the economy your deposit is worth less than what you imagined it would be.

•Principal risk is a loss in the initial amount you invested. For example you buy stocks worth $5000 and the stock value has fallen and you find no other option but to sell rather than lose further. You sell all the stock at $2500.
The principal you lost is $2500. If you retain the stock you may still lose if the stock value falls further.

•Interest Rate risk is the fluctuation of the price of stocks or bonds due to a fluctuation in the rates of interest.

•Market risk is the factors outside the control of companies like changes in the economy, government policy or market trade.

•Credit risk is when you invest in bonds and the company is unable to make interest. They return your entire principal. Then your investment has not yielded returns.

Duration

Duration is as important a factor as risk in evaluating your investment. Duration is the time within which investors can get back their investments. Duration and risk determine the investment returns. Duration can be short term or long term and fixed or managed (by investor).

Returns

The Rate of Return (ROR), Return on investment (ROI) or simple return is the money earned or lost to the amount invested. This is a very popular metric used in financial analysis. It is simple and versatile. If an investment does not have a positive ROI then it is not worth investing in it. If the investment has greater ROI then those investments are a better option. Generally investments that involve greater risks are those which promise a greater ROI.

Liquidity

Any asset that you own, be it property, stock, bonds etc… can be converted into cash. Money in the form of cash is the most liquid asset. In case you cannot convert your bond to cash within the term then your asset is illiquid.

Tussle for returns

• Over the long term property and stocks have out performed all the other assets. Real estate grants and real estate software could help you in real estate investments.

• Treasury bonds and other government related bonds are the safest investment for long term benefits.

• A diversified portfolio is a less risky than a concentrated portfolio in one or a few investments. The margin of profits you make will also be counter balanced.

• If you are not sure opt for managed investments instead of direct investments. You would have to pay costs for the management of your investments.

• A bank account is a safe place for cash in case you do not want to choose a high risk investment. Banking services could cost you and so the choice of services could be the best deal you make.

• Credit unions, mutual funds, money market funds, brokerage cash-management account and other options are also available.

• Invest in the energy sector stocks. Oil, natural gas and related stock have risen enormously over the past few years.

• Hotel and travel is another popular target for investment options.

• Mortgage companies are also in the fray for investing your cash. But make a wise choice as many have acquired a dubious distinction of cheating customers.

• Computer related stocks like software, hardware and internet have seen gainers and losers. Big cap stocks like eBay and google are the best bet.

• Investing in gold, platinum or precious stones are also beneficial as these show signs of increase when the currency falls.

Prudence in some investments is always advisable. Learn how the investment market works and then invest.