A safe investment can be defined as an investment that yields good returns in a low risk. Almost everyone invests money to secure themselves financially through investments such as real estate property, stocks and bonds.
Before you invest your money, you must understand thoroughly the intricacies of making an investment. Here are the three main factors that determine the difference between a safe and an un-safe investment:
Diversified portfolio: A diversified portfolio is at lesser risk than an un-diversified one, because your investments are spread out. So, even if one market is not doing well, your other investment may still make you money. A diversified investment portfolio works by acting as a shock absorber when the market falls. You must not keep all your eggs in one basket if you want to invest safely your money.
Risk: The amount of risk you take while making an investment is dubbed as your risk appetite. It is said that higher the risk, greater are your chances of getting a higher return.
Time span: This refers to the duration of time for which you make an investment. The safety of your investment is dependent upon several variables such as fluctuation of the market, liabilities and more. You must keep in mind your personal needs for making the investment. You can have a short, medium or long-term investment depending on the above-mentioned factors.
Most investors use below given formula to calculate how to make a safe investment:
100 – Age of the investor
For instance, if the age of the investor is 40, he should invest 60% (100-40) of his total investment amount in equities and the rest 40% in government securities.
All investment options carry certain inherent risk factors. Thus, a study of all investment options is crucial to safely invest your hard earned money.
Deposits: Deposits are a safe investment option, but they offer very small returns. Deposits include government bonds and fixed deposits.
Mutual Growth: In a mutual fund, professional people manage your money. The risk is low as your investment is diversified.
Bonds: Buying a bond is similar to lending money to an organization. You earn interest on that amount.
Equities: An equity is a long-term safe investment option that offers considerably higher returns than other safe investment options.
Gold: When the stock markets go down, the price of gold goes up.
Real Estate: The real estate market is a profitable, but unpredictable investment option.
You can also consult an analyst or a wealth manager to help you make a safe investment. Thus, weighing all the pros and cons of investing in specific sector.
There are many more aspects on building a safe investment, and managing it throughout market fluctuations and differing scenarios, both global and personal (aging, marital status, number of kids), and for that you will need to spend some additional time in educating yourself and making sure you take the right decisions.