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Investing - Choosing the Best Invesments for You

Updated on July 5, 2011

How to best choose what to invest your money in will depend on your personal circumstances and stage in life. It also depends on the market conditions in general. If you are trying to save up money for college tuition costs, then investing in a retirement plan is obviously not going to be the best idea for that need.

There are three main things you will need to keep your eyes on in regards to investing. For the best investments, there should be a good balance between liquidity, return, and how safe or risky an investment is.

Return

What kind of return is reasonable to expect on your investment. This is probably the first thing people think of really, "what is in it for me if I invest?" It makes sense that you don't want to just give away your money for a poor return or no return, or even a loss. Make sure there is a fairly high chance of at least a little return, and many safe investments do this. Investments that offer the chance to make a lot of money often come with the greatest risks of course.

Source

Liquidity

You need to know how easily you can access your money. Find out how quickly you can convert your investments into cash should the need arise. For some people, their "emergency" funds can be used (and therefore tied up) for investments. If you must do this, make sure its liquid, so you can get to it and get it out quickly.

Money market accounts and savings accounts are good examples of investments you can convert to cash quickly. Investments that have shorter maturity dates are good ones too, CDs are good examples. Like I stated earlier, for longer term goals like retirement, liquidity is not so much an issue. For those kinds of investments, where you are just after growth or asset building, liquidity is not as important. Growth investments may include stock mutual funds and other certain stocks.

Safety - How Risky is your Investment?

With the investments you are considering, it is smart to look at how safe it is. Exactly how risky is the investment? You can't really invest without taking at least a little risk. There is always some risk, but you are just looking for the least risky. The obvious biggest risk is losing money (at least to many people it is), so they look for a sure thing or try to get close to it.

Some of the safest for these people will be things like bank accounts and the U.S. Treasuries. There is another risk to think about, and that is that the amount of growth or income will not be greater or much greater than the rate of inflation. It would be as if you made nothing or next to nothing on your investment. Thus a possible argument for the more risky investments. The ongoing, gradual increase of what it costs to live needs to be something that is always in the back of your mind when making these kinds of decisions.

Now, perhaps more than ever, we are dealing with a struggling economy and a government that is spending crazier than ever. Our deficit was bad enough, and has been bad. Since the last election, what we see actually boggles the mind, almost making it swim with concern. That is a whole other hub, but that said, some will still argue that to not invest is the biggest risk of all.

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    • oceansnsunsets profile image
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      Paula 6 years ago from The Midwest, USA

      I appreciate you and your comments and visits, Phoenix! Thank you very much.

    • PhoenixV profile image

      PhoenixV 6 years ago from USA

      Great financial advice well done.

    • oceansnsunsets profile image
      Author

      Paula 6 years ago from The Midwest, USA

      Thank you Simone.

    • Simone Smith profile image

      Simone Haruko Smith 6 years ago from San Francisco

      You make some great points here- especially about liquidity, which a lot of other personal finance guides glaze over! Great Hub :D