It’s all about money honey. With prices going up, expenses are skyrocketing. Earnings are not staying in tune with the expenses and so every penny saved is now worth tuppence. Our elders have always advised and chided us to save. With economies roller coasting from one crisis to another it is prudent to pause and look at certain aspects of money for today and tomorrow.
Investment-what is it?
Investment for that matter is any kind of time, energy or matter that has been spent with the specific intention accruing some benefits in the future which is more than that which has been spent or invested.
While investment can be in anything even in terms of a relationship between two individuals, or education, more often than not we refer to financial parlance while talking of investment. Thus in finance speak investment is the buying or so to speak creation of an asset such that there is an increase in capital through increase in asset value on liquidation, interest earning, rent or such individually or in combination of one or all.
Essentials of Investments
Investment is more of a process and to the layman has many components which work in tandem to fructify the return.
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Capital: This is the start point of investment. This is the money through which the asset is created or acquired.
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Tenure: this is the period of time that the asset is allowed to work and earn return whether in the form of one time appreciation, or periodic return, or a combination of both
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Liquidation: every asset has to be liquidated at some point of time for the asset to realize its value and the incremental return for the investor. If there are periodic returns in the form of money backs or rents, this may be delayed, and total capital value appreciation will increase.
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Return: This is the apple for which we all strive and is a factor of the capital, tenure and our acumen towards investment.
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Risk: most investments have some degree of speculation involved in the process, which leads to the risk. Higher the risk the probability of return is also higher, and on the flip side possibility of loss is also there. It is the Investors acumen to asses this risk and accordingly invest that is the true factor controlling the return. It is usually seen and also advised by renowned Investment Gurus that risk tends to mitigate itself when investments are made for longer tenure.
Harnessing into an investment cycle
Warren Buffet who is renowned as one of the best investors of this time advises to invest small, early and long. He advises the best way to hedge out the risk is through investing small amounts and long time. When invested over a long time the risks tend to get mitigated as the crests and troughs which are natural to any market are overcome. By investing small amounts on the other hand it does not hurt the investor on the other hand to stay invested for a long period. Buffet also advises starting early as that allows for longer periods of investment. Thus the mantra we derive is ‘small, early and long”.
Favored Investment Avenues
Some of the most common and favored investment avenues for people are listed below. Your favored avenue would depend on three main parameters
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Available investment capital
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Risk appetite
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Goal of investment
The most common instruments are:
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Basic bank deposit in a savings accounts, which gives a minimal return, but essentially doesn’t affect the capital
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Fixed term deposits or bonds also offer the security of retaining the initial capital, but as the tenure of the investment is fixed the return is higher. This is the typical choice of a low risk investor
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Stock market and other markets is the choice of investors with a high risk appetite and good analytic ability. Investors are seen to invest in stocks, commodities and such and found to make good returns depending on their abilities. Of course the risk appetite of investors also vary even more here, where extremely high risk driven individuals investing and speculating in futures markets or in intra-day trading basis their analysis of the business milieu
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Mutual funds try to bring in some sense in the mad scramble of a market environment, and are often the preferred choice of investors when they want some amount speculation but also want to hedge their risks.
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Precious metals like Gold and Silver have always been the choice of many investors. In India the significance of these metals in social functions further accentuate their value
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Real estate is the safest and securest form of investment, and is generally thought to work on a 5:10 yr cycle. Usually expected to double your asset value in 5 years time, and go through a cycle of crest and trough in a 10 year period. Traditionally a high ticket size investment this is the primary investment of High Net-worth individuals.
