Smart Investing

Remember the Characteristics of Smart Investment:

Time: A Key Determinant of any Investment's success.
     a. Start Investing and saving as soon as you start earning.
     b. Study you alternatives well from the perspective of time horizon.
     c. Pick both, Short term and Long term Assets.

Strategy: Some Compelling reasons to invest early.
     a. There are few obligations and debt to worry about a young stage.
     b. One can reap the benefits of compound interest by starting early.
     c. Investing early gives people an edge over inflation.

Personalise: Avoid some common mistakes.
     a. Invest in anything that locks you in for too long.
     b. Pick options that don't suit your risk appetite.
     c. Invest without assessing all available options.
     d. Invest without understanding the ramifications of premature termination.
     e. Forget to read and understand the fine print.
     f. Invest with only ROI in mind; Factor in taxes and investment fees as well.
     g. Carry unnecessary  baggage - Pay off any debt as soon as possible. 

It's all about Balance:
     a. Pick a good balance among debt, equity, Property and new market instruments -in short, a diversified portfolio.
     b. Use prudence in saving as well as spending.

Some more good practices to embrace:
     a. Invest only after careful planning.
     b. Think of the long term implications of every investment choice.
     c. Start saving and budgeting
     d. Adopt a lifestyle that takes care of the needs of tomorrow along with those of today.
     e. Align investment with overall career growth.

Whatever you do, Be flexible:

     a. Goals changes with time. Revisit them every few years. Your needs and market returns will both change in you 40s & again in your 50s. Re-assess your approach at regular intervals.
     b. Consult experts. Read Advice. Use information and intelligence to your advent age.
     c. Tailor you plans to your needs and risk appetite - Not the other way round.

Happy Investing 🙂

Art & Antiques

Art objects,collectibles and antiques are costly and illiquid investments. These investment have illiquid markets , because the market are characterized by low volumes and high values.Investments in art and antiques are large value investments which cannot be easily converted to cash at fair price.Moreove〽r, one really has to know the market of these products to be able to buy and sell these products.

Investment in art and antiques is being made for reasons which are personal and emotional, generally deriving pleasure.Art and antiques have a very low correlation with other asset classes and hence , have diversification benefits . fine art and other antiques have a very low subjective value. hence, there may be no exact measure for determination of the same . This asset class comes with very low level of liquidity.

Advantages

1. Tangibles assets
2. Low-correlation to the stock market
3. Growing rarity
4. Tax differences
5. Personal satisfaction
6. Wealth transfer

Disadvantages

1. Illiquid investments
2. Unorganized market
3. Maintenance
4. Wear and tear
5. Counterfeits and fraud
6. Markup
7. Low pace growth

Investment Risk

Risk is defined as the possibility that what is actually earned as return could be different from what is expected to be earned. 

A. Market Risk
i. Systematic risk refers to those risks that are applicable to the entire financial market or a wide range of investments. these risks are also known as un-diversifiable risk, because they cannot be eliminated through diversification.

• It is caused due to factors that may affect the economy/market as a whole, such as changes in government policy, external factors, wars or natural calamities.

ii. Unsystematic Risk is the risk specific to individual securities or a small class of investment. 
For example: Credit Risk, Business risk & Unsystematic risk.


B. Inflation Risk:

• It represent the risk that the money received on an investment may be worth less when adjusted for inflation.
•  It is also known as purchasing power risk.
• It is a risk that arises from the decline in the value of securities cash flows due to the falling purchasing power of money.

C. Interest Rate Risk:

• It is the risk that bond prices will fall in response to rising interest rates, and rise in response to declining interest rates.
• Bond prices and interest rates have an inverse relationship.
• Bond investment are subject to volatility due to interest rate fluctuations. This risk also extends to debt funds, which primarily hold debt assets.

D. Purchasing power risk:

• The best way to fight against this type of risk is through appreciable investments such as stocks or convertible bonds, which have a growth component that stays ahead of inflation over the long term.

E. Liquidity Risk:

• It refers to the ease with which an investment can be bought or sold in the market.
• It implies that the investor may not be able to sell his investment when desired, or it has to be sold below its intrinsic value, or there are high costs to carrying out transactions.

F. Re-investment Risk:

• It arises from the probability that income flows received from an investment may not be able to earn the same interest as the original interest rates.
• The risk is that intermediate cash flows may be reinvested at a lower return as compared to the original investment.

G. Exchange Risk:

• It is incurred due to changes in the exchange rate of domestic currency relative to a foreign currency.
• When a domestic investor invests in foreign assets, or a foreign investor invests in domestic assets, the investment is subject to exchange rate risk.

H. Regulatory Risk:

• It is the risk of a change in regulations and law that might affect an industry or a business.

I. Investment Manager (Alpha) Risk:

• The return of portfolio is dependent on the fund managers skill to take correct decisions and in turn translate the portfolio return in capital gain over the period.
• Alpha is a measure of excess return over a benchmark and is positive when portfolio outperform a benchmark and negative when portfolio underperforms the benchmarks. 
• Since the portfolio can underperforms the benchmark, investor is exposed to risk and is known as investment risk  or alpha risk.

J. Business Risk:

• It is risk inherent in the operations of a company. It is also known as operating risk, because this risk is caused by factors that affect the operations of the company.
• Common sources of business risk include cost of raw material, employee costs, introduction and position of competing products, marketing and distribution costs.