Investing Money Safely - Layman's Tips

The Thumb Rule of Investment

A thumb rule for investing is to look at 3 variables: Liquidity, Returns and Risk.

How fast or how easily can you convert the investment back into cash? That's liquidity.

What will you reap? Compared to what you sow? That's returns.

Is it a gamble? How much of a gamble? That's risk.

Usually if one's more, at least one of the other two are less.

Stocks are high risk, high returns, high liquidity investments, for example.

Money in a savings account is low risk, high liquidity, low return.

Money in a fixed deposit is low risk, medium liquidity, medium return.

Real Estate is a low risk, low liquidity, high return investment.

Gold is a low risk, high liquidity, high return investment.

Lending money to your friend is high risk, low liquidity, low return.

Keeping cash in a safe, high risk, infinite liquidity, zero returns.


Of course, the above are technical risks I speak of. There could be practical risks. Gold could be risky to keep in the house, and you may be fooled into buying land from someone who does not own it.


My father had a great method:

50% of his money was in absolutely safe long term investments. About 30% was in medium term, slightly risky investments like mutual funds. The remaining 20% was in blue chip stocks.

As you get into the groove, you will devise your own tricks.

For example, at our local bank, you pay a fee for the safe locker. If you are not going to wear some jewellery for a period of time, don't take a locker. Pledge your jewels for a loan, and invest that loan wisely. The bank will keep your jewellery for free!


I'm a layman; so I keep things simple. These are for absolute simpletons like me. Experts, skip this hub, and pardon my innocence.


All the best to you, budding investor.



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Comments 61 comments

Zsuzsy Bee profile image

Zsuzsy Bee 8 years ago from Ontario/Canada

Lending money to a friend, high risk......very true

Great HUB regards Zsuzsy


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

Only technically a risk, Zsuzsy. If you don't lend, you risk love and affection. :D


Pat 8 years ago

Keep these coming, Wordsmith. I am investment challenged, but I've been giving it much thought. I'm possibly moving from one company to another. I wonder whether it'll be wiser to cash in my 401k and buy stocks in an up and coming shipping firm or roll it over to the new career. I won't be able to make contributions to my new job for a year or two, and the company won't be matching my rolled contribution. It might grow faster buying $3.66 in stocks; as many as I can.

This is a great thread. Teach us what you know, and speak slowly.

Pat


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

I know very little, as is obvious by my very simple tips. I only want to start people off, and invent their own tricks. I also wish everybody would invest with the plan of becoming rich one day.

Thank you, Pat. 


Iðunn 8 years ago

with lending to friends, I only lend what I can afford to lose and gift it. I tell them if they can afford to repay, great. most do. it's not as high risk as one might think, at least for me, and since I have no expectations, on the rare occasion it doesn't get repaid it doesn't cause animosity - rule of thumb, those who don't repay don't get 'gifted' again though. :p


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

LOL, To insure oneself against bad borrowers, lend them a small amount first!

Thank you!


Iðunn 8 years ago

I'm chronically poor. That's the only amounts I can lend anyway. :p Maybe that explains my lucky streak on paybacks.


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

Poor is a relative thing, Iðunn. It is only a matter of proportion. 

Anyway, after you're cured, invest.


Iðunn 8 years ago

I can't. It would be a sin. :p Aw, maybe if I knew the entire background of some company or something - I was liking Ben and Jerry's for a while (on the CEO issue) and a few other companies that make sure their employees are covered decently in pay.

Nah, I know what that money comes from, me and my neighbors misery. I couldn't bear the guilt.


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

Then let all invest. :)


Iðunn 8 years ago

in my world, the money people earn for working comes out to about 50% of the cost of running a home to the lowest american standard - rent, gas, elect, water, phone and food. average wage in my town in 7$ an hour, average rent which used to be around 350$ is now 600$ you figure it out. the housing bubble killed my town. entire blocks are completely empty of renters. I had to move out to the middle of nowhere to be able to afford rent, but I pay it back in gasoline to get to church and the grocery store which are all 30 miles plus away.

nobody has the money to invest. it's because they are underpaid by companies seeking more profit for their stockholders.


Iðunn 8 years ago

kenny, I'll try to stay out of your investing hubs. :p you can delete my comments since I doubt they are very helpful. hehe


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

That's more reason why people should save and take care of themselves


Iðunn 8 years ago

you certainly are courteous and rather stubborn. I have to admit I enjoy that. :) I hope you are having a nice day. I had a lovely day here.


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

LOL! Great that you are having a lovely day, dear friend!


Iðunn 8 years ago

lol, you must be in a good mood too. what a fun change in profile pic. :D


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

Fun isn't it? Inspired by you, of course! :)


Iðunn 8 years ago

aw, now I feel special. :) is that a high wind or did you have to gel it out? I gel mine sometimes to make it extra poofy. :o


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

I cheated. Photoshop. ;)

BTW, your hair's great whatever trouble you give it.

 


Iðunn 8 years ago

lol, not much. I wash it and put it up in a ponytail. once in a while I can be bothered to brush it. :o when I'm going out, which is like twice a year (lol) I put Dep gel in it and make it even thicker.

I have pretty thick hair though anyway. When it's really long, and I rinse it in the bath, I can barely lift my head. If I'm going to be colouring it a lot (weird colours) I cut it off so it's cheaper to dye. Right now it's at a horrible tweener stage. I don't know whether to cut it off again, or grow it out again. Bah.


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

Poor hair! It knows not its fate! This is like the Rape of the Lock!


Iðunn 8 years ago

My hair probably fears me, and rightly so. I'm also considering cutting off the front into bangs again. Decisions, decisions. :(


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

Cut on the third day after the New Moon, and it will grow back faster. :)


Iðunn 8 years ago

:O oh you know I'm going to have to try this. :D


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

for those who want it to grow slower, after the full moon. Tell me if it works


Iðunn 8 years ago

I will if I try it - I shall have to decide.  Of course the nice thing about not deciding is that a decision is made - it ends up long :p  

My hair grows really fast anyway though.  I shall have to pass this hint along to my daughter; her hair grows really slow. 


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

It's an old Indian tip; hope it works. You have to cut only the split ends or something, only.


Iðunn 8 years ago

I put in long hair for just a minute. :p look quick. I'm changing it right back. hehe. this is a clip from a vid, why it's so fuzzy, maybe a year and a half ago before I whacked it off to just below my ears.


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

hehe, it looks real great. I like long hair on people but guess it's difficult for them.


Iðunn 8 years ago

I was wondering if you caught it. LOL.  ya, I ran the long, the really short (which is what I'll do if I cut it again) and then back to my beloved happy socks. :D


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

caught it, then thought it was a mirage or something LOL


Iðunn 8 years ago

hehe. it's kind of fun. a little private hair revolution that the masses miss - just you and me notice. I admit to rather enjoying it. :)

well, it's my wrong 3 (a.m.) so I'm down for the night. besides, I need to get up to turn off that awful infomercial :O however I wish you a great rest of the day and see ya on hubblies tomorrow I imagine. :) best to your family.


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

I enjoyed that drama, too! Love it, what a creative thing to do!

Wish you a good night's sleep, Poet.


Isabella Snow profile image

Isabella Snow 8 years ago

Great information, Kenny. I've had mutual funds and stocks and personally I kind of prefer not having them, because they can be such a pain in the arse to liquidate. But your hub makes it all seem worth it. ;)


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

Thank you, Isabella. You are being kind to my hub, inspite of being cheesed off with investments.


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

Thank you, Manohar, you're absolutely right!


cgull8m profile image

cgull8m 8 years ago from North Carolina

Your father gives a great advice. I invest in stocks but not having a good go, needs too much time and expertise. But is better to save, probably should add some safe investments to the mix. Gold seems to be ideal. Cheers.


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

Gold if kept safely is best. In India, everybody has small items of gold on their person, for emergencies. Can be pawned anywhere.

For the layman, mutual funds are better than stocks. No need to be very knowledgeable.

Cheers, Cgull!


IWantMoney profile image

IWantMoney 8 years ago

True Gold can be low risk BUT remember I believe it was in the 80's and the gold and silver market went kerplunk. Lending money to a friend is a "write-off" LOL

I love your lens' - they are informative humourous and eye catching!


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

When some investments go kerplunk, they only go non-liquid for a period. Then we should hang on, and not sell. Maybe buy some more.

Thank you, IWantMoney; may you have a lot of money!


compu-smart profile image

compu-smart 8 years ago from London UK

Great tips and nice comments ;)

I would love to take these great tips on board but i live for today which is not the best of solutions to building a financial future for rainy-days so i shall now try to take your advice on board!


Abhinaya 8 years ago

A very informative hub Kenny.But thank goodness my husband takes care of everything.I can rest in peace.


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

Thanks, Compu-smart. Live for today, right, but enjoy saving like an experience, and it will be part of that process. It need not be boring.

Abhinaya, you have a good provider, there, congrats!


RachelOrd profile image

RachelOrd 8 years ago from Palm Coast

Thanks Kenny! This definately simplifies the confusing world of investing! I like your dad's style-relatively safe so he didn't lose his shirt, but still able to make the deals to make the cash flow. Great-Thanks Again!


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

Why, thank you, Rachel! He didn't lose his shirt, yes, and manages to keep himself in style with many expensive shirts.


vreccc profile image

vreccc 8 years ago from Concord, NH

Kenny,

Where is Chennai? China?


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

South India, Jonathan. It's the capital of Tamilnadu, a state that extends to the southern tip of the peninsula.


vreccc profile image

vreccc 8 years ago from Concord, NH

I almost when to India in 2004. My wife and I were going to Israel from China. There was a connection in Mumbai. We ended up going down to Hongkong and then straight to Tel Aviv. I was really hoping to see India.

Some day...


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

Yes, hope you do it. And touch Chennai, too, if you can.


vreccc profile image

vreccc 8 years ago from Concord, NH

You bet!!!


monitor profile image

monitor 8 years ago from The world.

Lots to think about here. Investing intrigues me a great deal. The concept of money making money? mmm.. Thanks for the food.


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

Thank you, Monitor.


vijayanths 8 years ago

very interesting and useful hub Kenny.


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

Thank you, Vijay!


Mark Knowles profile image

Mark Knowles 8 years ago

Nice hub Kenny,

I have a rule about lending money to friends - I will only lend it if I do not expect it to be repaid. If the sum is too high and will cause me to be upset about it - I don't lend it. This all depends on my personal finances at the time LOL


Ralph Deeds profile image

Ralph Deeds 8 years ago

Here is a good place for a beginner to start

http://www.vanguard.com/

Withdrawing money from a 401k is usually a bad idea because that creates a taxable event. That is, withdrawals are taxable income at the same rate as wages. Rolling the 401k over into an IRA with a good mutual fund company like Vanguard is recommended by investment advisers as the best alternative for most people. Unless you have a lot of money buying stocks is not a good thing to do because they don't allow enough diversification, and as, Kenny pointed out, individual stocks are risky. Individual investors in stocks are at the bottom of the food chain--the last to find out the bad news and the last to find out the good news. Individual stocks pose two kinds of risk--the risk that the company will not do well or even fail and market risk, i.e. that there will be a market meltdown such as the one we have experienced in the last few months. In either case you will lose a large percentage of your investment. Good, no-load, low cost index mutual funds eliminate the individual company risk but not the risk of market declines. If you will need the money withing 5 years the best place for it is in a money market fund. That eliminates both types of risk and you can be sure it will be there when you need it. Mutual funds are best for long term investments for retirement.


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

Thank you, kind gentlemen, for reviving this hub.

Mark, I agree. That way we keep our relationships and our peace of mind. We can probably allot a certain amount to be 'given away' as you advise.

Ralph, thanks for the link and bonus tips; both enrich my hub. Over a long term, I agree that mutual funds are best. For real estate, one needs heaps of money, whereas one can invest whenever one has surplus money in MFs. Right!


cristina327 profile image

cristina327 8 years ago from Manila

Grest hub. It is very informative and is helpful for a layman. Thanks for sharing this with us.


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

Cristina, thank you. I also meant that they are tips from a layman, as I am pretty much that when it comes to money, and not an expert. What I know I have posted here.


manish.pucsd profile image

manish.pucsd 8 years ago from Bangalore , India

I think the risk also depends on the tenure of investment period . You have mentioned mutual funds are high risk , but you also mention that its only in the short term .. If the investment tenure is 10+ yrs ... risk is very less )


Kenny Wordsmith profile image

Kenny Wordsmith 8 years ago from Chennai Author

Mutual funds are not high risk; stocks are. I said that MFs were slightly risky only.

Thanks! :)

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