The Rewards and Risks of Investment

Being successful in investing not necessarily means you make a lot of money it depends on your objectives. Another important thing to note is knowing the risks and how to use it in your purpose. The way you think about the reward is to choose a strategy and investments that fit your goal. This the same for everybody: whether you're rich or poor, a novice or an expert, where objectives are Protection, Earnings and Growth.   Protection: Your objective is to keep what you've saved already. Your money needs to earn money because inflation will erode its buying power and leave you an amount lesser than you saved. Safety should be your top priority. That means lending your money for a short period of time to borrowers with credibility. Since borrowers can't do much with your money in short duration, they won't pay much in interest. But that's just the trade-off. You keep your money close and safe, earning the enough interest to lessen the effects of inflation and protect your savings. Common investments for protection are: Savings accounts.Insured by Deposit Insurance Company, open-ended loans to bank. Certificate of Deposits/Time Deposits.Loans to bank for short periods. Treasury bills. loans to the government for specified periods. Money market funds.Insured by Deposit Insurance Company. Money market mutual funds. Uninsured collections of short term loans. Earnings: You could give your money to someone who will promise to give a regular, predictable income stream that may beat inflation. To earn income, people generally give a little more control than when investing for protection: You lend money for longer periods but expect to be compensated more for it.For example, Treasury bonds with high rates being offered for a long period of time. This is because the government will pay more interest in exchange for the extra time they can use your money. Another way is to buy stock that pays a dividend. Some investment for income are: Municipal bonds and Treasuries. Usually pay interest that's free from some income tax. Corporate bonds. Usually pay interests that's taxable as income. Utility stocks. Pay dividends quarterly. Fixed income mutual funds.Pay income regularly, sometimes monthly. Growth: Growth refers to investments that appreciates in value. Generally, stocks are investments for you who wants growth. Some stocks are even called "growth stocks", which tend to be shares of small companies that may grow faster than the general stock market. What's the Risks? In investment, you should know your purpose. the risk is in using them in the wrong purposes. For example, you need money next week, you could think stocks are riskier than savings account because the price could drop. But if you're trying to raise money for college in 5-10 years, savings account would actually be riskier-because you'll never earn enough, while stock someday might. It's not the investment itself that's risky; it's how you choose to use it. You can't avoid it... The moment you have money even your paycheck, you have risk. Prices goes up while you hold it, making what you want to buy more expensive. Even you do nothing with your money, there's a risks,like not having enough money when you need. You have to take risk that's appropriate for reaching your goal. If your goal is challenging, you'll face challenging risks. ...but you can weigh it. You always weigh risks with your money, finding the right balance and making choices accordingly. To buy or wait for better deal. To save or spend. Even to carry a little or a lot in your wallet. To find proper balance, you have to weigh the risks involved in reaching your goal.Without a goal, you can only assess a rick by mere emotion. ...and you can control it. Because you invest money somewhere or on someone else doesn't mean you can't control your money. In fact, the financial world is designed to help people control their risks, while letting go of their money. It's heavily regulated, where new strategies are constantly being created in new hopes of lowering risks without harming potential profits. ...and use it to your advantage. Risk is an important tool that you can use to your advantage. For example, you could invest in a very safe bond that pay low interest, or in a bond that is slightly safe but pay more interest. If, based on experience, that level of increased risk hasn't cause any problems you may opt to earn extra.

Mark Hugh Neri

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