Every wise person makes some savings from time to time because they are required to meet any emergency, any unforeseen circumstances and some future obligations like if you are unmarried, your marriage, your own educational expenses, your brother/sister’s educational expenses, your requirement of accommodation and/or improvement therein, accessories, luxuries, vacation etc. etc. Every one has his/her own priorities. But till then, savings remain idle and the people tend to invest so that at the time of the need, they may be able to get back with some yield thereupon.
It is, as we understand, an investment. Investment or investing is a term with several closely-related meanings in business management, finance and economics related to saving or deferring consumption. Investing is the active redirecting resources from being consumed today so that they may create benefits in the future; the use of assets to earn income or profit. There are many modes to invest your hard money. You can invest in gold, real estate, term deposits with banks, securities, bonds, shares, commodities, antiques etc. – they have different pattern of their encashability, flexibility and yield.
The majority of the persons, who make some savings out of their domestic expenses, do investments haphazardly, without going through the details resulting into lower yield which they could have earned if they had made some comparative studies of various investment avenues. Those who master the art how to invest in the stock market, tend to adopt their pattern of investment like their source of further earning, apart from keeping the money safe for their future requirements as well. If you go through the prospects more deeply, you may find some risk by feeling that you are handing over your money to some other hand. Some time some doubt whether the money will come back or it will earn the amount to the extent expected, increases your risk.
The time and experience can train you up how to deal with risk. By solidly identifying some market opportunities you can achieve good results. Investing money is an exact discipline, where you expect to earn good results.Kindly be careful, when your investments are not performing well, it may be due to the following mistakes:
• You let losing positions drag on for longer than you should, as you hope that eventually, you would be proved right.
• You are a bit harsh on yourself, and you assume that to make a loss, must have missed something obvious.
• You let it depress you that many hours of work on research and analysis could actually lead to failure without looking at the factors like correlation and liquidity, and you do not consciously anticipate the losses.
• Having consciously recognized risk, you do not reason that you must try to minimize it.
• For better yield, taking risk is worth adopting and accept that trading is unique — you would quickly be out of business with the number of failures if you do not adopt correct approach that failures are part of life and risks are not accounted for correctly and in advance.
• You did not have patience to watch the changes in the markets and you are taking decisions very randomly, mostly affected with sudden changes.
• You did not ask yourself whether you pursued a genuine opportunity, you did not understand how the market usually works, you backed a big idea or market anomaly that you had identified or you did not take the potential reward worth the risk.
If you have let yourself down, you may learn from the experience and try not to do it again. But if the investment looks like it made sense, you can try not to be put off. Accept that you cannot judge the quality of a single trade or investment by whether you made a profit or loss.This approach can be treated as disciplined. You do not want to change your investment style on the back of just a few disappointments. The outcome of an investment or trade is not necessarily a true reflection of the merits of the original idea.
Since the markets have evolved and become increasingly sophisticated, there has been enormous scrutiny of just about every possible opportunity. Any obvious and reliable way to make money has now probably disappeared. This means that there are fewer opportunities which offer smooth above-average returns. In fact, the opportunities likely to last longest are those which are the most uncomfortable. Those pportunities may probably lose money eleven months out of twelve, even if they may pay off in the other month. We live in a quarterly or annual reporting world. People evaluate performance over a given period and take action if results are not up to scratch.
By careful management of risk, you may be able to take on some uncomfortable types of investments. Early stage companies are often private companies which are not listed on any share market, although that is normally their aspiration. There are many of these little unlisted companies searching for financial backers, and they usually find it very difficult, since few investors are interested in them. You can expect better results by private lending as they can be closely held companies and better managed and if their bye-laws permit. It is true that none would like to park his hard earned savings into a high risk sector, too uncomfortable. The majority of the companies fail, and the investor needs to select his investments extremely carefully. Investors also have very little liquidity, and they may have to wait years for a chance to get some money back when the company floats on the share market or is acquired by another company. But good, small companies can be under-priced. This can be an advantage for anyone investing in start-ups if they are able to sort through the many companies looking for money and to choose the good over the bad. In this direction, the process is not that different to looking at the fundamentals driving currencies, interest rates or other markets, and over a ten year period, you can manage to achieve well over a 20 per cent annual return.
For better yield, you may have diversification in your investments plans. The world is risk averse. People want to avoid nasty surprises. Investors would prefer to have steady reliable returns, rather than potential wild swings of wins and losses. Diversification can allow investors to reduce their risk without reducing their overall return. The idea of diversification is that it smoothes out the flow of wins and losses. It is unlikely that a variety of separate trading ideas will all win or lose at the same time. So even if we are placing riskier trades, it may not result in a riskier total portfolio. It may be possible to have a more comfortable existence, and still pocket the high return. You may diversify within an asset class. For example, a stock portfolio can have a mix of some blue chips with some small stocks. Diversification across all asset classes (stocks, bonds, cash, gold, property, etc.) is more effective though, since the positions are less correlated. You shouldn’t keep a losing position simply because another one is doing well, and in aggregate you are not losing money. You may base every investment on its own merits; keep some cash as one component in a diversified portfolio.
Before making your investments, it is still better if you take decisions on the basis of your experience, reliable tips and your own requirements. Be happy – make your investments wisely.