Some Tips About Investments
To make money from your savings you have to make a calculated financial plan. There are many ways to invest your savings. You will not get rich in a day by investment but you will get a substantial amount of return by the investment in right direction. Initially you have to study about the risk & return from the investment in a short term & long term basis.
There are many types of financial institutions which take deposit from the investors. Bank offers short term saving bank deposit or long term deposit like F.D (Fixed Deposit), R.I.P. (Reinvestment Plan), similarly the Post Office has N.S.C. (National Savings Certificate). Many finance companies offer Mutual Fund Investment. You can directly investment in stocks or bonds.
To choose between the long term investment & short term investment you have to set a goal. Why do you want to invest, for retirement, for college education or for purchasing a house? You have to choose the type of investment according to the length of time when your money will be required. Stocks, mutual funds are the long term investment & the return of it depends on the market situation. At the time of downward trend of the stock market if you want to cash the stock for urgent need you will not get the proper return.
Next thing you have to know about the risk factors & your risk tolerance. The general perception is that small return is more secured than higher return from investment. In our country term deposit like “F.D./ R.I.P./ R.D. in Nationalized Bank or N.S.C./ K.V.P. in Post Office is the most secured long term deposit, because the Central Government is the guarantor of it. But the return is very low. On the other hand investment in stocks, mutual funds, bonds are risky. The return depends on the trend of the market. You have to calculate the risk tolerance before investing in it.
In my opinion you should spread your investment in different types of investment. To avoid the major loss of your investment you should keep at least 30% of deposit in long term deposit of Nationalized Bank or Post Office. The rest portion spread between the stock, mutual fund & bond. Though the return from stock is high yet try to keep minimum portion in it for its high risk factor. Thus you will get a combined decent return irrespective of the situation of the market.
Investing In Bonds- How Is It Done And Is It Safe?
Stocks and bonds. You have doubtlessly heard of them, and if you have been reading my articles, you know what they are. If you haven’t, here’s a quick update: stocks represent a fraction of ownership in a company, and a bond represents money that a company “borrowed” and has to pay back on set dates. You may have heard that bonds are “safer” to invest in than stocks, but is this true? How are bonds traded, and what are the differences between a stock market and a bond market? Hopefully, this article can put these questions to rest.
Unlike the stock market, bonds markets do not usually have a centralized trading system. Instead, bonds will be traded in decentralized, dealer based over the counter markets. When an investor buys or sells a bond, the counter party to the trade is almost always a bank acting as a dealer. Another difference between bond markets and stock markets is that sometimes investors don’t pay broker’s fees to dealers with whom they buy or sell bonds. Instead, the dealers get their money by collecting the spread, which is the difference between the price at which the dealer buys a bond from one investor and the price at which he sells the same bond to another investor.
In terms of volatility, bonds are usually somewhat safer than stocks, especially short and medium dated bonds, but the value of stocks can definitely change. Bonds are liquid – it’s fairly simple to sell a bond investment, and the safety of a fixed interest payment that you will receive twice a year is attractive. Bondholders additionally enjoy certain legal protections: in the United States if a company goes bankrupt, its bondholders will be paid before stockholders because they are creditors.
But, bonds also come with their risks. Fixed rate bonds are subject to interest rate risk, which means that their market prices will shrink in value when the interest rates rise. Bonds can also be subject to other risk factors such as call and prepayment risk, reinvestment risk, event risk, liquidity risk, credit risk, inflation risk, yield curve risk, volatility risk and sovereign risk. Price changes in a bond can also affect mutual funds that hold these bonds immediately. If the value of the bonds in a trading portfolio has plummeted over the day, the value of the portfolio will also have fallen.
Finally, in the case of bankruptcy, because there is a hierarchy of creditors that must be paid that bondholders are not on top of, there is no guarantee of how much money will go to repay the bondholders even though the money will go to them first before shareholders. Bondholders have been known to lose some or all of their money when this happens.
Mallory Megan works for Rapid Recovery Solution and writes articles on nationwide collection agencies. Check here for free reprint licence: Investing In Bonds- How Is It Done And Is It Safe?.