Growing Wealth With Investments

When it comes to growing wealth, investment vehicles play a major role in order to help an investor achieve his investment objectives. As we all know, certain investments cater to certain needs. An investment plan should be tailor fitted to a person according to his investment goal.

There are three things that need to be considered when making an investment decision. First is the return a person requires from his investment. The higher the return, the higher is the corresponding risk. Second is the amount of money a person is willing to invest. Basically, the larger the amount of investment fund available, the larger the potential returns can be. Lastly, a person has to consider his investment horizon or the amount of time that he will allow his money to grow.

            Having said these, Let us look at the investment vehicles available to an ordinary investor that has the potential of helping him grow his wealth with good returns. Let’s start by looking at the more conservative type of investments all the way to the more aggressive type of investments. For conservative investors, bonds should be their option when choosing an investment vehicle. Bonds offer conservative returns but has a lower risk component compared to other investments like equities. In bonds, the investor is considered the lender while the government or the corporation is considered the borrower. Investment returns usually range from 4-10% per annum.

            Looking at more aggressive investments, equities offer the potential for higher returns. Equities, also known as common stock of a company offers an investor a potential for dividends as well as capital appreciation. Equities offer investors ownership of a company by purchasing their shares of stock in the national stock exchanges. Though equity investment has its corresponding risk relative to its potential investment return, investing in equities can certainly provide growth and value over the long term. By investing in equities, an investor can participate in the earnings as well as to the growth of the company in the form of dividends and through the appreciation of the value of his shares of stocks. Investment returns typically averages from 12-18% during good economic conditions but may turn to a negative territory during bad times.

Before investing in any investment instrument, there are a lot of factors that has to be considered. The major ones are:

1. Financial Objectives: An investor’s investment portfolio must fit his requirements. He must have a clear understanding of his goals and objectives to know where to invest and how to evaluate risk factor. If he requires higher returns, then he must be willing to take higher risks. This is because the higher the risks the greater the returns and vice versa. Thus, an investor should expect lesser returns when investing in a banks savings account as to when he is investing in stocks or bonds.

2. Financial Risk Tolerance: An investor may have a nasty experience in the past regarding investing. Thus, he may not be able to tolerate risks. In this case, he should take calculated risk, rather than an uncalculated one. He must make sure that he is completely aware of where and how much he is investing and have a thorough market study performed before investing.

3. The Period of Time of Investment: An investor must ask himself the duration of his investment. The period of time may vary as per situation. In case he need the money back in 6 months or a year, it is better to invest in less risky investments. On the other hand if he will be using the money after many years, then he can start investing in more risky investments. Generally those investments that are risky are also the ones that yield greater returns. Shares are high risk in the short-term, however, in the long-term, they promise greater returns. The risk determination of an investor is greatly dependent on the period of his investment.

4. The inflation risk: Inflation means the rise in prices of goods and services. An investor must know that inflation eats on his investments. Thus, he must ensure that the return from his investment should at least be higher than the rate of inflation. If an investor is placing his money in a savings account, he must be aware that there is a chance that inflation rates may go higher than the interest rate that his money is earning.

In the end, after considering all these factors, an investor must decide on where to put his investments and be comfortable placing his hard earned money in it. He must also review his investments regularly to assess its performance and to see if it is in line with his investment objectives. Lastly, an investor should fully understand a certain investment before making any investment decision and making an investment.