In the money market, money is the seed, money is the fruit. And the human intelligence is displayed by the place, where he/she puts the seed to get the maximum fruits. Some of the classic places are housing, stock securities, bonds, property etc.
Investment has come to be a method of letting money work for you to generate more money or service. There has come up four types of investment. First type is investing your goods or equivalent money to create durable consumer good, hoping to get a better life by using the good. Example: building a house for self.
Second type is entrepreneurial. The individual uses the resources to create goods and services for others, and sells it for the profits.
The third type is direct lending the money or good for getting interest. These include bonds.
The last type is giving money to an organization and becoming a stakeholder in that organization. The more the organization earns, the more the investor gains and vice versa. This is called a share of business.
In the first two types, the capital remains with you, and in the next two types, you give the control of your capital to else one. This is more risky, but returns are easier and higher. Whenever you invest, the risk is always involved. The way to reduce the risk is diversification, that is, to reduce the effect of fluctuation of a single security on the overall investment. It can be done in three ways:
[1] Spread the investment among different investment vehicles like shares, mutual funds, bonds, etc.
[2] Spread the investment in different risk zones. Generally low risk investment will give low returns, and vice versa. So spread you investment in different risk zones.
[3] Spread the investment in different industries and in different geographical areas.
As an investor, few things need to be analyzed before investing the money or any capital
1] Time duration of the investment.
2] Risk tolerance and management.
3] Possible interest gained on investment.
4] Diversification to spread the risk.
5] Tax on the interest.
6] The liquidity and marketability of the stocks concern.
[7] The purpose of investment: At times the goal of the investment is for producing future cash flows, while at others it may be for purposes of gaining access to more assets by establishing control or influence over the operation of a second company.
A very interesting but not so common investment is investment in gold and silver. Gold and silver almost keep its value independent of economic, political, social, currency-based crisis, and with time the value of gold goes up. So one can think of buying the gold and selling it when required, and most often gets a good return.
(Expert=Madhu_Bihari)
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