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Not every investment is a wise financial investment decision. There are so many ways that you can invest your money that it is worth it to take the time to find investments that are likely to give you positive returns. Because, when all is said and done, the whole purpose of investing is to make a positive return on your money.
Nobody in their right mind would knowingly invest in something that they expect to lose from. But how do you make wise financial investment decisions?
A wise financial investment is one that is appropriate for your particular circumstances and one that has a high probability of giving you a positive return. Some examples of investments are stocks, bonds, mutual funds, derivatives such as binary options, business investment, real estate and so on.
Three Common Wise Investment Plans
Not every one of these types of investments will be appropriate for everybody. Three (3) types of investments that you may consider as wise investments include
- Equity stocks
- Bonds and
- Mutual funds.
However, these investments are not good in and of themselves. The investor must carefully select the assets that they will invest in based on the specific asset itself. For example, equity stocks are usually most suitable for investors who are prepared to invest in the long term, and who are willing to accept that in the process, unrealized losses may occur. However, in the long run, equity stock investment will usually give a positive return. Similarly, bonds may be good investment vehicles for those investors who have a lower risk tolerance and who want greater assurance that they will make a profit from the investment. The best type of bonds, in this case, are treasury bills or government bonds since the return is guaranteed. For investors who want better rates of return than offered by bonds but also a lower risk of loss than offered by stocks, mutual funds may be a great choice. However, the mutual fund manager must be skilled in investment and should ideally have a good track record of success.
Three Common Unwise Investment Plans
Because of the high level of risk as well as the uncertainty associated with them, three common unwise investment plans include:
- Binary options
- Cash Loans
- Other types of derivatives
Binary options have gained massive popularity in the last couple of years with the option of trading these instruments online. However, these investments are very risky and have a high failure rate. However, binary options brokers make the possible returns seem so attractive, that the unlearned investor is likely to fall for the sales pitch without realizing that they are very likely throwing away their hard-earned money. This type of investment is basically gambling and the investor either wins or he loses – it’s all or nothing.
Cash loans should also be avoided at all costs because they often prove to have a high failure rate due to the high risks involved. Those who offer cash loans, don’t usually require any substantial collateral, leaving themselves wide open to losses when they lend to persons who clearly cannot service these loans.
Although derivatives are legitimate investment assets, since their return is so closely linked to the return on another asset, they usually have a very high level of risk. This means that it is easy to lose your investment when you invest in derivatives. This type of investment should be reserved for those who can afford to lose much.
A wise financial investment is one that gives a positive return and that meets the investor’s investment goals.