Investing Rules of Thumb

September 13th, 2011 | finance, Goal, Investing, Money, Personal Finance

thumbs One of the biggest rules of thumb that you can keep in mind when it comes to investing is to look at three different variables in everything that you do. These three variables are liquidity, risk and returns.

Liquidity is how fast or how easily you can convert an investment that you make back into cash.
Returns is what you are capable of reaping in comparison to what has been sown.
Risk is how much of a gamble it is for you to make a certain investment.

Usually if one of these variables is more, then at least one of the other two is going to be less. For example, stocks tend to be a high risk investment, a high return investment and also a high liquidity investment. On the other hand, when you put money into a savings account, you are looking at an investment that is low in risk, low in return and high in liquidity.

When you put money into a fixed deposit, what you have on your hands is an investment that is low in risk, medium in liquidity and medium in terms of return as well. When you put money into a real estate investment, then your investment tends to be low in risk, low in liquidity but high in return. When you invest in gold, what you have is an investment that is low in risk, but that is high in liquidity as well as high in return.

When you lend your money to your friend, what you are dealing with is an investment with a low rate of return, a low level of liquidity and a high level of risk. Keeping your cash stowed away in a safe, a shoebox or your piggy bank is going to be a high risk investment with an infinite level of liquidity and a non-existent level of returns.

These are purely technical risks that are being spoken of above. There are also practical risks that you are going to need to put consideration into. For example, keeping gold in your house is a risky proposition even though it generally wouldn't be as risky to invest in gold. Investing in land could be highly risky if it should happen to turn out that you purchased land from someone that does not actually own that land. So there are numerous risks that you are going to need to consider, not just the risks associated with the type of investment. You need to be practical when it comes to investing, as well as willing to consider the three variables that change the most when it comes to investments. Keep these things in mind any time you are seriously considering an investment of any type, and you will be much more practical in general when it comes to placing investments that will benefit you in the long run.

Photo Credits: assbach

Originally posted 2009-06-22 05:49:05. Republished by Blog Post Promoter

Related Posts

How to Stay Focused With Multiple Streams of Income One of the main problems facing those that have multiple streams of income is managing them. You can start to feel a bit like a juggler and chances are, you may be neglecting areas that could be performing better and making more money. Focusing can be tough, but there are......
What is the Best Credit Score? The calculations that are used to arrive at your credit score are actually based on a lot of different statistical data, and they are based on objective evaluations. You receive points based on a number of different unique credit factors. Then, creditors are going to take all of this information......
The Meaning of a Credit Score I do not suppose you know what your credit score means do you? Do you really? I think you might want to take another moment to think good and hard on that, because in September of 2004, the Consumer Federation of America reported that of one thousand Americans they surveyed,......
How to Keep Your Money Safe As some of the biggest and most respected banks in the world look as though they may be crumbling, consumers are wondering in greater numbers just how safe their finances are. In times of economic uncertainty, there are no real guarantees, but there are a few things that you can......
Leveraged Finance Defined Leveraged finance relates to funding a business, a company or another investment using more debt than would be considered normal. More than normal debt is going to imply by nature that the funding is a riskier prospect, and therefore more costly than normal borrowing in general. As a result, leveraged......

Related Websites

Best Central Air Conditioners Choosing a new central air conditioner is often a task that waits until there is an immediate need - your air conditioning system goes out on a hot day in the middle of the summer. At that time, you may not think about the best central air conditioner, you just......
Is Autographed Memorabilia Worth it? Sometimes you may see it claimed that autographed memorabilia is one of the biggest wastes of money out there, but is this true? A man named Chris Pummer once equated autographed memorabilia to premium coffee as well as cigarettes as the biggest possible wastes of money, but is this true......
Gas: The Worst Long-Term Investment With the current economic and political environment around the world petroleum supply is become an increasingly unstable investment. Yet it seems to be difficult for America and other countries to make any headway, since petroleum-based products are heavily entrenched in our market. In fact, the world economy is based almost......
Are You Skinny Fat? (ie: if thin people don't exercise they aren't healthy) Do you know what it means to be skinny fat? Just because you are not obviously visually overweight, that does not mean that you are healthy by any means. There are many people that appear to be thin and healthy, but......
The New Glucose Revolution By Dr. Jennie Brand-Miller, Thomas M.S. Wolever, Kaye Foster-Powell, Stephen Colagiuri, Thomas Wolever Anytime it takes five people to write one book, you’ve got to wonder whether the subject matter is really difficult, or if there was a shortage of available projects on the market. The New Glucose Revolution tackles a pretty complex subject, but we failed to see how five people were......