High Yield Investments

Why are these high yield investments that pay different returns or fetch you different amounts for your funds? Investments are not just about returns but rest on three cornerstones risk, return and liquidity. And no matter where you invest, you must take into account all three factors if you wish to have the cake and eat it too.

High yield investments returns usually come with higher risk. A little bit of research can get you better returns with the same amount of risk. But if you want bigger rewards, you are going to run into the risk of your investments fluctuating in value. Take stocks the company stocks that are traded in the stock markets. They could gain or lose 10 to 20 per cent within the same month. Or for that matter real estate. See how it has been falling in the past few years. That is why you need to look at investments, like stocks and real estate as long term investments (three years plus). Historically, high yield investments like stocks and real estate gain and lose wildly, but end up smoothening out their gains and losses and doing better than most investments.

When do you need your funds? And will you get them when you need them? This is a question most investors never look at. If you need cash at short notice, don't try investments like shares. They fluctuate wildly, and you could end up selling at a huge loss because you may need cash immediately.

On the other hand, being too conservative will keep your head above water but will not get you to the shore. Leaving money in bank deposits or money market mutual funds may give you the peace of mind that your original investment is intact, but that's about all it will do. Over a period of a few years, such investments will not even maintain the value of the money put in, that is, returns could be lower than the inflation rate. So take a more long term view and if you look at a period of over a decade, such investments have just not beaten investments in stock markets or mutual funds. But if you are going to need your funds within a year, stick to being conservative.

How much do you need to invest? You can start building your investment base with as little as Rs 5,000 a month, Once you have set your financial goals, you need to work out how much you need to invest to achieve them. Here is a step by step procedure you could follow. Even after you figure out what you need to invest, review your target every year to see if you need to change anything because the investments are not performing as per your expectations or for other reasons.

Determine how much you need for your financial goal.
How many years do you have to reach that goal)
How much savings do you have to put away for this goal?
What will be the return on your invested savings?

How much is the shortfall between the amount targeted and how much will your investments get you. You may want to consider more aggressive investments if there is a shortfall and you have some years to go to reach your financial goal.