The word investment has a unique chime to it. It sounds like a golden duck quacking in your backyard. Then, you rush willingly to the den of investment manager, who charms you in the abstract jargon of finance. The guy may intimidate you with phrases like ‘price to earnings ratio’, ‘inflation adjusted’, ‘downward spiral’, ‘upmarket derivatives’ and so on. At the end of the session, you scratch your head and wish to pull the hair of that thing sitting on the other side of the table.
In olden times, investment was limited to an article, which had dual purpose-mattress. Now, we have cupboards and drawers of varying sizes to store our investment. If one is not vigilant, you may lose your precious savings in the murky waters of the investment world. We will filter that water.
Investment is defined as putting your savings into certain activity that may bring value or profit at a later date. It is a process. So, if you were planning to get Richie Rich in a jiffy, this article is not for you. You might opt to go to Fort Knox and then to a nearby correctional center.
Different people invest for a variety of reasons. The seasoned and somewhat seniors look for the days when they would be put out to pasture or happily go home to rest under the sun. The young, bold and reckless answer the adrenaline rush and at times get burned in trailblazing. Investment decisions are made based on prudence, greed, needs and wants. Age and gender come into play too.
Clarity of purpose is central to your decisions. The first question that pops in your mind should be ‘What is my goal?’ ‘What profits in what timeframe I may be harvesting?’ ‘What amount do I have or should I borrow?’ ‘What are the benefits and pitfalls, for example taxes?’
Property/Real estate has historically been the gold standard of investment. Property means brick and mortar structure. If you make an informed decision, it is the safest class to put your savings in. The decision should be based on your capital and your capacity to pay installments to the bank, failing which you are looking at foreclosure to the utter delight of the bankers. Sub-prime crisis of 2007/08 is a classic case of such pitfalls. You need to study, analyze, interview the residence and real estate agents and physically survey the area before investing. You may extend your investment in commercial properties like shops. It is good to buy when the housing market is down. In upmarket urban areas, values, do not fluctuate much.
Stocks are the shares of companies. The Stock exchange is a place where these shares are traded. The public can buy and sell shares through the exchange. Companies annually share their profits by way of dividends, provided they make profits. The value of the share is a reflection of the performance of a company.
Investing in stocks can be a tricky and risky business. You have to invest part of your time knowing the companies, their background, and performance over the years, business, reputation and record of dividend pay-out. You may seek professional help if necessary. The golden rule is that never put all your savings in a single company or a single sector. Stocks investment should be a minor part of your overall strategy with diversified shares in different industries.
Bonds are fixed income instruments, which pay you a certain interest on designated dates. Bonds are considered to be relatively secure investments. Bonds can be issued by the government or by private companies. The returns are, however, small. Metals like gold, silver and platinum are commonly viewed as secure investment. It requires common sense analysis of historical trends. Such investment requires certain expertise, which is available through investment banks and advisory services. You may physically own the precious metals or you can buy investment instruments. There are many ways of approaching metals buying, all are safe, if you follow the guidelines. Again, the diversification within the precious metal class is fundamental.
Bitcoin/Cryptocurrencies & Derivatives
As a beginner, you would like to stay away from these funny little creatures, which may look captivating but may be poisonous. Derivatives were the major factor for the global financial crisis of 2008 causing trillion dollar losses and untold misery to millions. Moreover, you have to be a mad genius to navigate through the complex regulations governing these instruments. Therefore, don’t go through that rabbit hole, not for now at least.
An investment portfolio does not end with all of the above. Establishing your own business can be an exciting undertaking. You might have dreamt of owning Amazon or Microsoft. Perhaps, you can start with a shop at the kerb or a noisy pub or a classy joint in a posh area of town or a web store of bits and bobs. Perhaps, a day will come when you may be the businessperson of the year with IRA hot on your heels.
Here, it gets interesting when you enter into the maze of finance. So, you have an initial capital to kick start but you need a constant supply of dough from a financial institution, which can underwrite the success of your little story. It may sound daunting, but don’t despair. There are many reputable houses that can harness your ambition. In Singapore, for example, people who wish to get started in the investment game prefer to turn to the professionals for guidance. According to SME Loans, it’s important for you to seek out local professionals who will be more able to provide such guidance. You can do research online to find companies that specialize in providing these services, from appraisal of your feasibility study to package your loan that matches your possible cash flow.
Investing in a nascent venture has multifarious demands on you. Your time and your presence is pivotal. Non-negotiable discipline, financial record-keeping, administrative skills and people management are essential ingredients for success. No matter what kind of cut-throat material world you are living in, your mental strength and desire play a central role in all your decision making and thus success.
The lesson is that your investments ought to be prudent, analytical, long term and diversified.
Conventional wisdom of investing applies not only on beginners but also on hardcore professionals. All follow the adage ‘in for a penny, in for a pound’ Then, suddenly the water appears crystal-clear.