Sunday, October 27, 2013

Knowing What You Want Out of Your Investment



As I told you many times before, gambling is not investing. Speculating is not investing. Buying a home to live in is not investing. So what is investing? An investment is to commit money or capital to achieve a return. The investor knows how much money or capital they are committing and how much they expect to get at the end of the investment.  When you speculate in something, you expect to gain a profit but you have no idea how much or when. Gambling is when the person has no idea what they are putting their money into and hopes that they can get a fast profit.


   
   Many people are expecting a guarantee. A guarantee is an assurance of something that assures a specific outcome. In the case of investments it could be a guarantee that the investment would give you a percent of return or if the investment fails, you would get your money back. Before we go any further, in the world of gambling, speculating or even investing, there is no such thing as a guarantee. 

I   If someone say that they can guarantee you a fix rate of return, then you know that the person talking can't be trusted. 


I have a friend that I knew for decades. The friend came to me and asked me about this investment opportunity that some investment salesman told him about. The friend wanted to know if this was a good investment. If someone has to come to me and ask if an investment is a good investment then they already know what the answer is going to be? NO……



When looking at bond investments, the investment of choice for me, here is why I wrote the course on investing for anyone who wants to know about bond investing. Click on the link below.



Just about any vehicle is a good investment, speculative, or gambling instrument for someone. Most are not good for me. What you as the person putting up the money have to determine is;

   1. Am I investing, speculating, or gambling? An investment is allocating money for a corporate bond. You know how much you are putting up for the investment, for how long, and you know when you will get the money. Allocating money for a stock on the New York Stock Exchange or money for a mutual fund is what you would do when you want to speculate. You want to gamble then just buy the next hot stock talked about on the Financial Cable TV channels.

   2. Once you find out what you want to do, figure out how much risk are you willing to take. For example, if you want to invest in a “AAA” bond because it has very little business risk, that is great. But if the bond is only giving .5% interest and the inflation rate is 2.3%, you are already losing money, 1.8%. You have to beat inflation to make money.

    3. Have some idea where the country is in the interest rate and inflation cycle.  If the talking heads on TV and the representatives from the Federal Reserve is talking about tightening  interest rates soon, you may only want to buy bonds that mature in less than 5 years. If the inflation rate is only 2% and if you are investing in bonds that is giving say 10% then you can afford to go out 10 years in maturity because a yearly increase in interest rates for 10 years will probably total lower than 10%.

   4. Look at the Standard and Poor’s ratings, we know that if a bond is above BBB+ then we know to check the interest rate of the bond. If the bond is less than a B- then we know that the bond is carrying a very high business risk.



For bond investing, this is all that you need to know about how to select bonds that you want to invest in.
  

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