In the modern and digital world, we have several options available to invest our savings. Each person has different objectives on their investment. Here are 6 most important factors that you should consider before letting your money work for you.
Safety
Perhaps, there is truth to the axiom that there is no such thing as a completely safe and secure investment. Yet, we can get close to ultimate safety for our investment funds through the purchase of government-issued securities in stable economic systems, or through the purchase of the highest quality corporate bonds issued by the economy’s top companies. Such securities are arguably the best means of preserving principle while receiving a rate of return. Safety investment is usually found in the money market and include Treasury bills (T-bills), Certificate of Deposits (CD), Commercial Paper or the fixed income bonds in the form of municipal and other government bonds, and corporate bonds. The securities listed above are ordered according to the typical spectrum of increasing risk and, in turn, increasing potential yield. To compensate for their higher risk, corporate bonds return a greater yield than T-bills and Government bonds.
Income
Safety investment often have the lowest rate of income return or yield. Investors must inevitably sacrifice a degree of safety if they want to increase their yields. There is an inverse relationship between safety and yield; as yield increases, safety generally goes down, and vice versa. In order to increase their rate of investment return and take on risk above that of money market instruments or government bonds, investors may choose to purchase corporate bonds or preferred shared with lower investment ratings. Investment grade bonds rated at A or AA are slightly riskier than AAA bonds, but presumably also offer a higher income return than AAA bonds. Most investors, even the most conservative-minded ones, want some level of income generation in their portfolios, even if it’s just to keep up with the economy’s rate of inflation. But maximizing income return can be an overarching principle for a portfolio, especially for individuals who require a fixed sum from their portfolio every month.
Growth of Capital
The growth of Capital is most closely associated with the purchase of common stock, particularly growth securities, which offer low yields but considerable opportunities for an increase in value. For this reason, common stock generally ranks among most speculative of investments as their return depends on what will happen in an unpredictable future. Blue- chip stocks, by contrast, can potentially offer the best of all worlds by possessing reasonable safety, modest income and potential for growth in capital generated by the long-term increase in corporate revenues and earnings as the company matures. Yet, rarely is any common stock able to provide the near absolute safety and income generation of government bonds.
Tax Minimisation
An investor shall pursue certain investments in order to adopt tax minimisation as part of his or her investment strategy. A highly paid individual seek investments with favourable tax treatment in order to lessor his or her overall income tax burden.
Liquidity
Liquidity refers to an investment ready to convert into cash position. In other words, it is available immediately in cash form. Liquidity means that investment is easily realisable, saleable or marketable. When the liquidity is high, then the return may be low.
Marketability
Marketability refers to buying and selling of Securities in the market. Marketability means transferability or saleability of an asset. Securities are listed in a stock market which is more easily marketable than which are not listed. Public Limited Companies shares are more easily transferable than those of private limited companies.
Concealability
Concealability means investment to be safe from social disorders, government confiscations or unacceptable levels of taxation, the property must be concealable and leave no record of income received from its use or sale. Gold and precious stones have long been esteemed for these purposes because they combine high value with small bulk and are readily transferable.
Follow Sulthan’s Monologue and follow me in Twitter @sulthankhan.
Let us know in comment section what are the other points you consider before investing.
