Basic Facts on Investing Money
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Basic Facts on Investing Money

What is difficult is the conservation of money earned and the ability to invest capital in such a way as to provide best for immediate and future financial needs.

It is a known fact under financial experts that people know how to make money but that they lack the expertise to conserve their hard earned money. Another problem is that they do not know how to make the same money grow.

The excuse for this is that they do not have the time to acquire the financial expertise necessary to make a sound investment decision or the inclination to acquire that expertise.

There seems to be a fallacy that the growth of hard earned capital is something that automatically happens once it is acquired. No, you should make your money work for you and the best way is to invest.

There are basically only five principles to take into account when making an investment:

• Period

• Liquidity

• Risk

• Inflation

• Return after Tax

1. PERIOD

Here there are three categories and the investment should be arranged in such a way as to cater best for these needs:

1.1 Short-term needs

Here provision should be made for those extraordinary expenses such as hospital bills, house and car maintenance and any other expenses that cannot be anticipated and which in normally not included in a household’s monthly budget.

1.2 Medium-term needs

These can be anticipated expenses in the foreseeable future such as replacing household equipment and furniture. Also count in planned holidays.

1.3 Long-term needs

Here adequate provision should be made for future comfort and happiness. The secret here is that a cash fund should be build up; the so-called nest-egg.

2. LIQUIDITY

With liquidity is meant the ease and speed in which an investor will be able to convert an asset back into cash should the urgent need be there for hard cash at hand. The best examples here of liquid investments are a savings account and call deposit.

3. RISK

It is general knowledge that the greater the risk, the greater the return. Conversely, the lower the risk, the lower the return. In cases where a person’s capital is safer, the return will not be great. Therefore, an investor who is totally dependent upon his investment income should seek a secure low-risk investment and accept the lower return.

4. INFLATION

Inflation is the shrinking of the purchasing power of a person’s capital. Just as example, at an inflation rate of 20%, the purchasing power of capital will diminish to one-half of its original value within four years – Syfrets Trust. The growth of the investment of a low-risk investor will invariable be beaten by inflation, whilst the investment of the high-risk investor will either keep up with, or beat inflation.

5. RETURN AFTER TAX

In layperson’s terms, return can be considered as the payment or incentive an investor receives for investing his capital as opposed to spending it. It is obvious that a person will be taxed on the income on an investment, which in turn will also have an influence on the growth or eventual value of your return.

In conclusion, the investment environment is complex in that there are many factors to be taken into account. Therefore, it is imperative to build a sound relationship with your advisor to get the best advice.

Source: Syfrets Trust

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Comments (3)

Nice facts about investing money

cool facts...thanks

Nice information.

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