Basic Principles Of Investment
Many people believe that they have to work extra hard to earn more money. This isn’t true. You can still double the amount of money you have even without lifting a finger by investing it wisely. If you want to learn how to make your money work of you, here are a few basic facts about investment you need to know:
Types of investments
In a nutshell, investments are something you buy or somewhere you put your money into in order to get a return. There are 4 basic kinds of investments aka asset classes: cash, fixed interest securities, shares, and property.
Cash investments are the cash you keep in your bank or building society account. Fixed interest securities or bonds are the money you put in an account which is then loaned to a company or the government.
You buy shares to earn a stake from the corporation’s earnings. Your share from a corporation’s profits is called dividends and the amount of dividends you receive will depend on how many shares of stock you’ve purchased.
Lastly, property investment is when you buy either residential or commercial property then hold it until it appreciates in value and/or lease the space to tenants to get monthly returns.
Other less known asset classes include commodities, foreign currency, contracts for difference, and collectible like arts and antiques.
As the saying goes, don’t put all your eggs in the same basket. That is why many investment gurus advise against investing all your money on the same asset class.
When do you start?
Ideally, someone who wants to invest should have money in the equivalent of at least six months of his monthly salary on his savings account.
Returns are the profits you earn from your investment. Although most people want to receive their profit in cash, that’s always not the case in a real world scenario. Some corporations actually pay their returns on interest, dividends, rent, and capital gains or losses.
Another thing you have to learn early on is that you don’t always get your returns in full. The amount you receive may already be reduced depending on the rate withholding tax and professional fees asked by your investment manager.
Banks and investment firms may market their products as zero-risk, but that’s all just marketing fluff. There’s no such thing as a zero-risk investment.
Risks will always be present when you invest money. The only difference is the level of risk you’re taking on depending on the asset class you’re dealing with.
For example, the money you put in deposit accounts actually depreciate in value over time, because interest rates don’t always keep up with inflation rates. Shares of stock are also very susceptible to falling prices, even though they are more adaptable to changing interest and inflation rates.
Last quick tip before you leave! Returns and risks actually have a close relationship in investment. Traditionally, investments with a secure guarantee often give low returns for their investors, while risky investments may provide higher profits.
Given that, the reason why I favour property investing more than other investments is because property is something all people need. No matter how much technologies and processes change, people will still need shelter. Because of that, properties will always retain value more steadily than other types of assets. In that regard, risks in property investment are more controllable.
In any case, whatever route you choose, remember that the right savings or investments for you will depend on how happy you are taking risks and on your current finances and future goals.