Tuesday, 5 July 2016

Investment Advice

Investment advice is a tricky thing with parameters like investor's age, risk, returns, appreciation, liquidity, term etc. The details are in the below matrix

Risk Return Liquidity Capital Gain
Cash Nil Nil High Negative
Gold Nil Nil High Moderate
Bank Deposits Low Low High Nil
Private lending High High Uncertain Nil
Equity Share (Blue Chips) Moderate Low High High
Mutual Funds Low Moderate High Moderate
Pension Schemes Low Moderate Low Nil
Real Estate Low Nil Low Uncertain

Types of Risks are:
  • Credit Risk: You may not get back your money.
  • Inflation Risk: The longer you have in cash, inflation erodes its value.
  • Liquidity Risk: In long term investments, turning asset into cash takes time and carry penalties.
  • Time Risk: A better investment opportunity might present itself.
  • Market Risk: Values fluctuate as per market sentiment.
  • Business Risk: Profitability may not be as anticipated.
  • Interest Rate Risk: Interest rates might get lowered in the economy.
Invest in  continuous learning:
  • Invest in yourself. Anything you can do to develop your own abilities or business.
  • Attend conferences, seminars, and meet-ups.
  • Take a free online course.
  • Talk to people and ask them questions (listen more than you talk).
  • Research something you are interested in.
  • Travel.
Some important tips:
  1. The worst investment you can make over time: cash.
  2. Never lose money. Focus on capital preservation strategies.
  3. An investment in knowledge pays the most interest.
  4. Beware of expenses. A small leak will sink a great ship.
  5. Diversify your investment portfolio.
  6. Invest in a broad-based index fund. The economy will do fine over time.
  7. Don’t be afraid to drop your poor performers.
  8. Working with an adviser could help you earn more toward your goals. 
  9. Sometimes, hiring an adviser can actually be riskier than doing things yourself.
  10. If you’re determined to pick stocks, don’t buy into a business you don’t understand.
  11. Invest for the long haul.
  12. To be a successful investor you must divorce yourself from the fears and greed of the people around you, although it is almost impossible.
  13. It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
  14. Remember, price is what you pay; value is what you get.
Most people lose money in disastrous investments, gambling, rotten business deals, greed, poor timing, in the stock market, in options and futures, in real estate, in bad loans, and in their own businesses.

My view:
  1. Provide adequate capital.
  2. Remember, risk exists everywhere.
  3. Do your research & home work properly.
  4. Formulate your investment strategies.
  5. Focus on capital preservation and risk mitigation.
  6. Select good broker and verify his credentials.
  7. Start investing over time.
  8. Diversify your portfolio.
  9. Monitor investments periodically.
  10. Enjoy the profits.

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