How to invest your hard earned money? This is a question facing by all investors. Investment means keep aside your money in any money multiplying schemes. But all investment options have a risk factor which is high or low as per the investment schemes. Normally we invest money for satisfying our future financial needs. You have to choose your risk factor and investment strategy as per your requirements. If there is a high profitability, a high risk factor also there? For Example Stock market, there is high profitability and high risk to get a loss. Following are some money saving tips which you can choose and invest your hard earned money as per your risk appetite and financial goals.
Do your investment homework
Investment homework includes financial planning and determines your financial goals, investment strategy and risk bearing capacity. You have to secure your own financial future and the future of your kids and family. So you must ascertain your financial goals such as buying a residential house, education of your children, marriage of yourself or your children, purchase of movable and immovable properties, retirement needs etc. choose low risk investment methods for short term financial goals which should be attained within one or two years and choose more risky investment methods for long term financial goals. You have to develop an investment strategy for yourself, a tailor made investment strategy. You cannot follow a readymade investment strategy, because you are a different person and your financial needs are also different from others. So make enough research on your investment plans and investment schemes.
Liquid investment for short term needs
Liquidity of investment means how easy you can turn your investment in to liquid cash or bank balance. The most liquid form of money is cash in hand. You can use it whenever you need. Cash in savings bank account is also a liquid investment. But money invested in Fixed Deposit account reduces the liquidity of investment up to a certain level. Only on bank working day you can break the fixed deposit and it will take some time. Just like, the liquidity factor comes down when the money invested in other form of investments. Some investment schemes have a lock in period and the liquidity is very low for such schemes. Determine the liquidity factor as per your financial goals.
How much growth or return you need
In this step you have to decide the growth rate of your investment. How much profit you need and how much growth you expect for your investment. A savings bank account gives you around 3.5% interest per year and a fixed deposit account gives around 9% interest per annum. But some selected mutual funds give you 15% to 30% annual return. Here you have to decide how much growth or profit you need to attain your financial goals after a stipulated time. Sometimes an investment in real estate gives you more return. So determine the rate of return you need from your investments.
How much risk you can face
Risk factor of your investment has an important role in your investment strategy and investment plans. This risk factor differs from person to person. I have seen persons getting worried of a very small amount of loss while some others are not worry even if they face a huge loss. Yes the risk bearing nature is differing from person to person. If you are very sensitive about facing risks go for safe investment schemes only such as bank fixed deposits, government securities etc. If you have a high risk appetite, go for stock trading, equity related mutual fund etc.
Following are some practical investment ideas which you can use as per your risk appetite:-
1. Safe investments: Safe investments are bank fixed deposits, company fixed deposits, post office savings such as Public Provident Fund (PPF), National saving certificate (NSC), recurring deposits, Employees provident fund or 401K, government securities, debt funds etc. You can choose any of these investment options as per your financial needs.
2. Mutual fund investments: Mutual funds are in different types and you can invest in as per your financial goals. Mutual funds are close ended mutual funds and open ended mutual funds. Open ended mutual funds are more liquid investments than close ended mutual funds, which has a lock in period. Mutual funds are managed by expert fund managers and the possibility of getting a profit is more than a loss. But equity related mutual funds and commodity traded funds are connected with stock market and commodity market and the profitability is related with the market condition.
3. Stock market investments: Stock market investment is high risky investment and you deposit only a small amount of money, if you do not have enough experience. Stock market is volatile and to predict the market is not easy. If you are not much experienced, go for equity related mutual funds or buy stock of strong companies and hold it for a long period of time.
4. Real Estate investments: This is an investment which needs a large amount of money and high profitability. Always get help of a legal expert when you buy real estate. The documents should be perfect and should have a clear title. Apply more money and earn more. But be vigilant.
5. Forex trading: Another type of investment which has a high risk is forex trading, or currency exchange. You must be experienced to make profit out of it. Some forex trading companies allows you to sign up with virtual money and can trade with that virtual money till you get enough experience and can change into real money.
6. Gold and other precious metals: The value of gold shows only an upward tendency and around 10% of your investment can be in gold or silver. Gold ETF funds are more liquid and safe than real gold.
7. Commodity trading: Commodity trading is also a good investment option. But you must be experienced to make profit out of it.
All these investment ideas are practical and can choose as per your financial goals. But remember that every investment option has a risk factor and you must be aware of the risk factor and liquidity factor of your investment to get a good return and to satisfy your financial goals.
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