“Planes are safer on the ground but they are meant to fly” by Anonymous
With some spare cash in the bank, most of us would contemplate on whether to put it in fixed deposits and earn a meagre 3% interest or to put it to greater use by investing it (but undertake a higher risk). After asking around, you find people investing in all kinds of commodities, from gold to bonds to properties.
So, what do you jump into and what do you dump?
Assuming you have limited resources (I mean cash here, and I suppose everyone has a limit), you would need to decide on what reaps the most profit, as in return on investment.
Before jumping into investments, determine how much risk you are able to undertake. Will losing half of what you invested threaten your retirement plans? Will losing 5% of your investment drive you nuts? In investments, risk and returns are almost always inversely related. Therefore, it is important that you find a balance between the two.
How fast and how much your money grows in a specified period of time depends on WHERE you place your cash. Well, you could place it under your pillow and earn zero interest with no/low risk (well, hopefully your house doesn’t get burnt down). Or you could place them in a savings account and earn 0.25% interest with low risk (hopefully the bank doesn’t go bankrupt). Or you could place them in fixed deposits and earn a relatively higher interest rate of 3% with low risk (hopefully you wouldn’t need to take out the money before the term ends and forfeit all your interest). Or you could invest them in less volatile bonds and funds and earn a non-guranteed 6% profit at low/medium risk. Or you could invest them in volatile stocks and earn a non-guranteed 20% profit at high risk.
Whichever option you decide on is mainly based on your financial goal and risk tolerance level. Placing your money in a savings account may be one of the safest places but it reduces the potential rewards that it could have generated if it had been invested appropriately.
Is this the right investment?
If you are staying up late all night watching over your investments or calling your fund manager every five minutes to check on the status (even in the middle of night), dump the investment and look for something within your comfort zone. You should be comfortable with the amount of risk involved and the returns accompanying it when dealing with investments.
The 3 Golden Rules
1. Remember that risk and returns are almost always inversely related. Look for the balance point.
2. Doing nothing about your wealth most probably means your wealth will end up with nothing more.
3. Find a comfort zone for your investments. Risking your health over financial gains is one risk you should never undertake.