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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