In a volatile and unstable global economy, it is very important to build your nest egg. Saving up for the rainy days entails either keeping your money in a secured location within your vault or just a cash box in your home, or depositing it in the bank in a savings account. Depositing in the bank gains a favourable nod between those two savings options.
More often than not those bank savings sit idly, earning a modest interest, less any appertaining withholding tax charged against your interest income. For those who does not need their savings immediately, it is more desirable to take your savings to a higher level of which is investing.
Investing one’s money basically has its own corresponding risks and rewards. The riskier the investments are, the higher the monetary rewards. Before making investment decisions, here are some questions that you should be asking yourself first:
What is my purpose in investing?
The question why in investing decisions is as critical and as important as any other questions. You must ask yourself your reasons for your investment decisions; whether you consider it as a profitable venture with which you can gain income that you will use now, or if you just have excess money in the bank that you wish to earn more. The answer to your investment will determine your willingness to take investment risks.
How much risk am I willing to take?
Now that you know your purpose in investing, you can now decide how much risk you are willing to take. Your risk appetite or your willingness to accept risk will determine the profitability of your investments. The more you need the income, the more aggressive you will become in investing. The riskiest type of investment is stock trading. The value of your investment fluctuates on a daily, even on trading-hours basis. You must practice sound judgement in procuring the types of stocks that you will purchase because this can empty or build your nest egg in one day.
Less risky type of investments includes mutual funds. This is a combination of stocks and bonds being handled by a fund manager. This combines the riskiness of the stocks, and the safety of fixed-income pay-out of bonds. Money market placements also have significantly lower investment risks. Literally risk-free are bonds, notes payable, term deposits, and savings deposits. They guarantee the pay-out of interest income, but the investment returns on this type is significantly lower than in stock trading, mutual funds and money market placements.
How much am I going to invest?
It is very important to assess how much of your savings is really a savings that is not intended for immediate use. Determination of the amount for investment will depend on your desired amount of returns, in combination with your risk appetite. If you want a high-yield on your investments, you need to invest a significant amount on high-risk investment type like stocks. There were cases of investors with a significant bulk of cash; who invested the same in a low-yield, secured investment like term deposits, and practically lived in style using the annuities without touching the principal amount of their investments.