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There are several types of investments, each with its own level of risk and return. Risk because there’s a chance that the investment will be as good as expected or as promised meaning to say that the client might not get all his money back or possibly the value of investment will go up or down. Return because the value of the investment can be positive or negative.
That is why before diving into any type of investment, read some of the best investment books. One should consider first many different factors. One should ask himself why and how much money he will put into this investment as well. Know the major pros and cons of the different types of investments.
Types of Investments
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- Savings on a Bank. One of the most common type of investment and the least risky is opening savings account at any bank. The money deposited earns a minimal interest in return and it can be withdrawn anytime. I guess this type is not the best option when a client is expecting long term growth.
- Bonds and Managed Funds. One of the financial solutions tailored for any client is Life Insurance. It is a long term investment with the best benefits of protection against loss of income and investment for future use. Here, protection and savings go hand in hand. The money invested here is lend to government or place on stock markets.
There’s a risk factor to consider because the return of the invested money is dependent on the rise and fall of the market. But expect the higher return of investment. We all knew that it is important to save. People are saving to provide money for medical needs, education of their children, retirement and future major purchases. Achieving those savings goal can be hinder primarily with death of the person.
Why? It is because how a person can save if he is already gone. The leading causes of death are those critical illnesses like heart diseases, vascular system diseases, cancer, tumor, major organ transplant, etc. And how much will it cost to undergo treatment for any of these critical illnesses? The money needed for medical procedure to threat any of these cost expenses around one million.
A person with ordinary savings cannot provide one million instantly for this terrible major medical expense. To save the person suffered from illness based on studies, the best action to pay for medical bills are to withdraw the savings, sell the family property and assets and be a burden to his neighbor, friends and other relatives by borrowing money from them.
The major advantage of investing on a Life Insurance is that once the policy is issued the insurance company will provide the needed money for his medical needs usually emergency funds of the policy owner when something happens to him, or immediate death fund when the insured died, or in the mere future, educational fund of his children when they reach the age of sixteen or he can buy anything he wish soon as he retires.
- The discussed types of investment are the most common and most investors should have to smooth out the ups and downs or rise and fall of the market. Other types of investments are: Term Deposits which is like bank savings that also pay interest the only difference is that you can’t withdraw the money during the term of the investment. Next is Share, when a person buy a share definitely he is buying a portion of the company.
If the company earns money, guaranteed you will be paid a share of the profit called dividend. Like the property prices , share prices are expected to rise up over a period of time and give the shareholder gain on his capital when he sell.
The other one is Property. The returns from investing on a certain property come from incomes from rent and from the increase of the value, of the property for a certain period of time. Last type of investment is the Alternatives which are investments that fall outside standard assets. Sample of this are Currency, commodities such as gold, derivatives, private equity, stamps and vintage cars
Investment Policy Statement
A document or agreement between the manager and the client that provides the investment details is called the policy. The information is detailed specifically including the forecast of return, the risk tolerance and all the requirements needed.
Return on Invested Capital
ROIC is the ratio that determines the return of the capital for a certain investment which is the key driver of a business value. It tells how good the Company is from its business operation.
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