xfdws MONEY-WIZARD sked Emerging Markets Datafile
September 15, 2003
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MONEY WIZARD: Investment alternatives, NATION
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We all have different goals in life. Some want to be rich. Some want to be financially secure. Others simply want to be happy. I myself want to be all three! But the one thing that is certain is whatever goals you may have it takes more than just wishes to fulfil them.
When I was young the value of discipline was instilled in me as the key to realising my long-term goals. As I grew up, I soon learned that careful planning, starting with personal investment goals, was a crucial first step to financial success.
Then the investment process got more complicated and methodological once I went on to study more in school and gain experience through work and life in general. Like myself, I believe that many of you may be lost in the investment jungle when trying to learn about today’s investment products which have become highly sophisticated and diverse.
To arrive at a conclusion, you need to understand and decide what road you’re going to take. Hence, being able to evaluate available choices from the investment menu is crucial and challenging. And so I hope that the following quick introduction to financial instruments may help.
The spectrum of today’s investment alternatives is a long one. It ranges from traditional products such as bank deposits, government securities, common stocks, mutual funds and precious metals-in particular, gold-to non-traditional investment vehicles like certificates of deposit (CDs), bills of exchange, corporate bonds, preferred stocks, hedge funds, real estate, properties, commodities, other precious metals and derivatives.
To help you jump-start the evaluation process, I would like to offer three factors for consideration when deciding on each instrument, namely, investment risks, income possibility and liquidity conditions. In terms of the risk within the investment products, the degree of it can be ranked from low to high as follows: bank deposits, short-term government securities, CDs, precious metals, mutual funds, corporate bonds, preferred stock, common stock, hedge funds, derivatives and real estate. In terms of income possibility, the ranking is simply the reverse of the above order.
Finally, in terms of liquidity condition, the ranking is government securities, CDs, precious metals, common stock, mutual funds, corporate bonds, preferred stock, derivatives, real estate, bank deposits, and hedge funds.
With these risk factors in mind, you next need to compile your investment candidates into a portfolio according to its major characteristics. Many financial planners would recommend that you think of your investment programme as a pyramid consisting of four levels. On the bottom of the pyramid is the investment for financial security. The products in this group are, for example, cash, bank deposits and government securities.
The next layer is the investment for safety and income. Products like corporate bonds and mutual funds normally fall under this category. The third layer is the investment for growth. Here you focus on instruments such as income stocks and real estate. Finally, at the peak of the investment pyramid is the speculative investment. Risky products like speculative stocks, junk bonds, derivatives and hedge funds belong to this group.
Building your own investment pyramid will provide you with the foundation for a more personalised programme later.
Paritat Lerngutai Paritat Lerngutai is head of the treasury department at Kasikornbank.
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