The world of investing is usually viewed as an overwhelming, intimidating and exclusive world and to the ordinary person, the questions are never-ending and exhausting. The potential investor feels defeated before they even begin.
Investing is the allocation of money with the expectation of generating an income or profit. Investing is just like planting a seed. If you plant a seed under the right conditions, you will reap twice or thrice what is sown at harvest time. The crop or fruit you harvest are your investment returns.
The primary aim of investing is to get a good return on investment. You should invest so that your money grows and shields you against future risks. The rate of return on investments should be greater than the risk involved, leaving you with a surplus over a period of time to enable you to meet your major financial goals such as buying a home, buying a car, starting your own business, or putting your children through university.
There are primarily three investment objectives: safety, returns and liquidity. In an ideal scenario, this means that one would like their investment to be absolutely safe, while it generates meaningful returns and is also accessible when you need ity. However, it is very difficult to maximize all three objectives simultaneously. Typically, one objective trades off against another. For example, if one wants high returns, one may have to take some risks; or if one wants high liquidity, one may have to compromise on returns.
Investors should bear in mind that all investments have some risk element. Investors should reflect on how much risk they are willing and able to take before investing. Willingness and ability to take risk should be considered separately. Willingness to take risk is determined by one’s psychological profile, whilst ability to take risk is determined by the investor’s time horizon and the size of the expenditures relative to the portfolio.
Before investing, research your options, assess risk, understand your needs and overall financial circumstances.
