Investments Basics

There are three basic elements you need to manage in order to maximize your return on investments.

Investment Size

A large investment amount attracts a large dollar return. For example let’s assume investor A and B. Investor A is highly risk averse  and is not sure about investments and decided to invest $1,000 in the money market for 1 year at 10% per annum. On the contrary,  Investor B is aggressive and decided to invest $10,000 on the same terms as B. By year end the dollar return of A will be $100 and that of B will be $1,000. The difference between the two is not anything except the investment size. If you are sure about the investment opportunity before you and you have assessed the risk you may want to increase your investment size inorder to have a better dollar return.

The same principle works for A and B if they had decided to invest in the stock market. Let’s assume that with their respective amounts, investor A bought 200 shares of XY Ltd and investor B bought 2000 shares of XY Ltd. If XY Ltd share price moves up by 50 cents, investor A will get a dollar return of $100 and investor B will get a dollar return of $1,000. Again the difference in the dollar returns is but a factor of investment size.

Investment period

Investments reward only those who are patient. If you invest today and divest tomorrow you are likely to reap nothing but transaction costs.  From the above example if A would invest the $1,000 for 10 years the dollar return will turn to be $1,000 same as B despite having invested only $1,000. Give your investments more time before you call it quit. This is more or less like Solomon’s wisdom in the book of Ecclesiastes when he said “Cast your bread upon the waters for you shall find it after many days”

Nature of investments

As a matter of fact stock market provides a good upside potential than the money market. The irony of it is that the same stock market has got a high downside exposure compared to the money market. Thus conservative investors tend to limit themselves to money market. However with good financial advice, the stock market can be a good bait for you to maximize on your return especially in emerging markets which are self diversified and not integrated with most world markets. Commodity Exchange can be an option depending on the terrain of the financial markets you are operating in.

the personal fund manager: Movers and Shakers

the personal fund manager: Movers and Shakers: "The terminology of movers and shakers is largely used in stock markets. Movers referring to those shares realising price gains and the vice-..."

Movers and Shakers

The terminology of movers and shakers is largely used in stock markets. Movers referring to those shares realising price gains and the vice-versa being true for Shakers. In life there are always movers and shakers. Being a mover is never an accident but it is rather something deliberately worked. If you want to be a mover do a daily self evaluation checking what you have done to improve yourself. Some of the habits below can immensely contribute to making you a Mover:

- Assume risk

All successful people assumed risk at some stage. The risks could have differed in magnitude but the bottom line is that each one of them took an action which had an element of risk. This is not a call to to uncalculated moves but rather an invitation to assume a reasonable and wise risk appetite.

The comfort of doing nothing is that you lose nothing but the risk associated is that you gain nothing too. This then leads to stagnation.

- More action and less talking

Wishful thinking is no redeemer but action can get you out of an unpleasant situation. This is a "knowledge age" where people know everything about anything and yet do nothing about everything. Action oriented people are bound to change the world and the slothful to ruin it. You choose your position. 

- Look ahead

Some opportunities do not make sense today till you look ahead into the future. Preparing for the future is about getting today what you will need tomorrow.

-Bridge the information gap

Information is required for personal growth. However information is not an end in itself, but it rather prepares you for informed action. The reason I encourage you to gather information is so that you can act better. Broaden your knowledge base not for the sake of it but to charter your course.

- Cherish work

Your attitude to work can make all the difference. Biblical wisdom teaches in the book of Proverbs that in all labor there is profit. You want to make profit work.

- Be grateful

Being grateful is a principle of success. Those who live and behave as if the world owes them something are bound to have limited success. Such people find faults everywhere except in themselves. Do away with the blaming attitude and begin to be grateful for even the little things done for you. Grateful people easily build connections and sustain them because they have an attitude to give in the relationship and not to take. Would you say thanks to someone?

Personal financial security

Most people have not managed to make bold decisions when they should have due to lack of financial security. Some should have left their jobs to set-up their own projects but the fear of not having a good fall back position restrained them. Financial security helps you improve your risk appetite. Potential entrepreneurs have remained procastinating due to an uncertain future.

The other sad scenario is that of young professionals who live from one pay check to another. These can find themselves begging the moment they lose their jobs. What a weird scenario? They can't meet their bills the moment they walk out of employment.

The challenge with many people is how to build personal financial security. The following financial habits can help in building one's pesonal financial security:

1) Religiously save money

The discipline to save is a secret to personal financial security. This can be effectively done by opening a separate account where one deposits monthly savings. The savings amount can be a definite percentage of your monthly income. No matter how small that amount maybe; please just go for it. Remember that small is the father of big.

2) Put your money in short-term investments

Short-term investments can include money-market; Negotiable Certificate of Deposits (NCDs); fixed deposits etc. The advantage of these short-term investments is that they are easily convertible to cash when cash is urgently. They help you conatain personal financial crisis.

3) Invest in assets that are resaleable

Such assets provide a good fall back position for your finances. In some markets there are shops specialising in retailing second hand goods which you can make use of to dispose your unwanted assets.

4) Invest in people

Wealth can disppear and so is the case with  money; but people will be around always. Relationships are an integral part in terms of fostering your personal financial security. You can borrow from friends on a simple premise- good relationships. Even if you start your business you must realise that much of business will be coming through relationships popularly known as networking.

It takes a decision to improve your financial security.

Prudent Borrowing

People borrow for all sorts of reasons. In some cases, borrowers find themselves entangled with debt leaving them with little breathing space due to untidy borrowing practices. The worst case scenario is where some individuals committed suicide after failing to manage their debts. Below are some principles which help you borrow prudentsly:

1) Borrow when it is absolutely necessary

Solomon’s wisdom teaches that a borrower is a lender’s slave. It is really scary then to borrow! But you still borrow anyway. Why borrow if you have not exhausted all the available options. Ask yourself this question always before you extend your hand to borrow: Is there really no other option?

2) Borrow to capitalize and not to consume

You are sitting on a financial time-bomb if you are borrowing to consume. The pain of borrowing is accelerated when you remain holding on to a liability with no corresponding asset. Infact when you borrow to capitalize you create a collateral for that debt in the process. Meaning to say that in the worst case scenario you may liquidate the asset to repay the loan.

3) Borrow when it makes economic sense

Borrowing at an interest rate of 5% per annum to invest in a financial asset yielding 6.5% per annum makes economic sense. The economic sense of it is that by year end you would have made profit of 1.5% pending deductions of transaction costs.

4) Borrow with a repayment plan at the back of your mind

People who randomly borrow with no clue/idea on how they plan to repay will always find themselves in MORE financial problems than those which caused them to borrow in the first place. Be wise. Ask yourself how you will repay before before walking away with borrowed funds.

5) Check your financial gearing before borrowing

Financial gearing in a layman’s language is simply one’s level of debt. If your gearing is above 50% think twice before putting pen to paper. Companies collapse due to unprecedented gearing levels and individuals are no exception. Watch your gearing. If its too high it can collapse your personal finances.

6) Consult before borrowing

This is especially true for couples. Before you borrow you need his/her approval. This creates a good fall-back position for you when the deal goes wrong.