正文
根本问题：什么是投资？您投资的目的是什么？
To different people, investment means different things. I've heard that some newly-weds call buying a set of china an investment. Sure, for her pleasure, it could be called loosely an investment. But it's not an investment in the monetary term.
For a regular person, the goal of investment is to generate profit for consumption. Since a person lives about 80 years, this fund needs to last that long. It's even better if there is anything left for heirs. This fund may come in the form of a lump sum, such as a lottery win or inheritance, or passive income such as rental or dividend. Passive income seems the best chance since lottery win or inheritance is hard to come by.
To invest a given amount of cash, one has many choices these days. Following are the most common.
1. Under the mattress.
Good: always accessible.
Bad: susceptible to fire, theft, loss of buying power due to inflation.
2. CD, money market fund.
Good: safe (for the most part), guaranteed interest, liquid (may pay a bit of penalty).
Bad: minuscule rate of return right now.
3. Stock, mutual fund with no or little dividend.
Good: liquid, easy to manage due to paper asset. May make a lot of money due to price fluctuation.
Bad: fluctuate with the market, which if affected by domestic politics, world peace, global economy, local economy, employment. No income stream, only profit center is price change (Dell used to be like this. If you want money, you have to sell part of it.)
4. Stock, mutual fund with high dividend (more than annual 5%).
Good: liquid, easy to manage due to paper asset, steady income stream.
Bad: fluctuate with the market, which if affected by domestic politics, world peace, global economy, local economy, employment. Corporation not managed by investor.
5. Commodity.
Good: may make a lot of money.
Bad, may loose a lot soon after. Highly subject to skill of trader.
5a. Precious metal such as good.
Good: good hedge against inflation.
Bad, the price is high now. Whether it'll go higher or lower is anybody's guess.
5b. Currency.
Good: may make a lot of money.
Bad, may loose a lot soon after. Highly subject to international politics and global/local economy.
6. Bond.
Good: guaranteed payment, price goes up when rate goes down.
Bad: rate is extremely low right now; price precipitates when rate goes up.
7. Rentals.
Good: real building, investor has direct control, rent paid by tenant, tax-incentive, mortgage, insurance to cover any potential damage.
Bad: management headache, price may drop in a recession (which is not so important for long-term investor). Fire (can be negated by insurance).
8. Collectible.
Good: pleasure, may make money as an expert.
Bad: highly susceptible to market. May loose a lot if duped.
9. Insurance.
Good: hedges again financial loss due to loss of property, income, life.
Bad: cost money to buy.
Each available choice has its advantages and disadvantages. An prudent investor needs to evaluate each option carefully and come up with a comprehensive plan of portfolio to invest.
To summarize:
Cash is needed for 1) everyday use, and 2) emergency use.
Insurance is required to cover potential loss.
Equity (at least dividend-paying stocks) and real estate both have a capability of generating on-going income, while in the mean time provide hedge for inflation.
Back in 1980, bond was paying 10% interest. It should have been an integral part of any investor's portfolio. Now, it's paying 2%, don't see the reason to bother.
Gold, it was $250 back in early 80'. Not $1200. Not sure it'll go up or down. Besides, it's a way of hedging for inflation, therefore a good way to protect wealth, not a good way to generate wealth, since it doesn't produce any on-going income. Without active trading, an investor won't see any profit until selling part or all of the investment vehicle.
Hope people would point out any mistakes here, and share how you invest.
www.sunskitehomes.com
To different people, investment means different things. I've heard that some newly-weds call buying a set of china an investment. Sure, for her pleasure, it could be called loosely an investment. But it's not an investment in the monetary term.
For a regular person, the goal of investment is to generate profit for consumption. Since a person lives about 80 years, this fund needs to last that long. It's even better if there is anything left for heirs. This fund may come in the form of a lump sum, such as a lottery win or inheritance, or passive income such as rental or dividend. Passive income seems the best chance since lottery win or inheritance is hard to come by.
To invest a given amount of cash, one has many choices these days. Following are the most common.
1. Under the mattress.
Good: always accessible.
Bad: susceptible to fire, theft, loss of buying power due to inflation.
2. CD, money market fund.
Good: safe (for the most part), guaranteed interest, liquid (may pay a bit of penalty).
Bad: minuscule rate of return right now.
3. Stock, mutual fund with no or little dividend.
Good: liquid, easy to manage due to paper asset. May make a lot of money due to price fluctuation.
Bad: fluctuate with the market, which if affected by domestic politics, world peace, global economy, local economy, employment. No income stream, only profit center is price change (Dell used to be like this. If you want money, you have to sell part of it.)
4. Stock, mutual fund with high dividend (more than annual 5%).
Good: liquid, easy to manage due to paper asset, steady income stream.
Bad: fluctuate with the market, which if affected by domestic politics, world peace, global economy, local economy, employment. Corporation not managed by investor.
5. Commodity.
Good: may make a lot of money.
Bad, may loose a lot soon after. Highly subject to skill of trader.
5a. Precious metal such as good.
Good: good hedge against inflation.
Bad, the price is high now. Whether it'll go higher or lower is anybody's guess.
5b. Currency.
Good: may make a lot of money.
Bad, may loose a lot soon after. Highly subject to international politics and global/local economy.
6. Bond.
Good: guaranteed payment, price goes up when rate goes down.
Bad: rate is extremely low right now; price precipitates when rate goes up.
7. Rentals.
Good: real building, investor has direct control, rent paid by tenant, tax-incentive, mortgage, insurance to cover any potential damage.
Bad: management headache, price may drop in a recession (which is not so important for long-term investor). Fire (can be negated by insurance).
8. Collectible.
Good: pleasure, may make money as an expert.
Bad: highly susceptible to market. May loose a lot if duped.
9. Insurance.
Good: hedges again financial loss due to loss of property, income, life.
Bad: cost money to buy.
Each available choice has its advantages and disadvantages. An prudent investor needs to evaluate each option carefully and come up with a comprehensive plan of portfolio to invest.
To summarize:
Cash is needed for 1) everyday use, and 2) emergency use.
Insurance is required to cover potential loss.
Equity (at least dividend-paying stocks) and real estate both have a capability of generating on-going income, while in the mean time provide hedge for inflation.
Back in 1980, bond was paying 10% interest. It should have been an integral part of any investor's portfolio. Now, it's paying 2%, don't see the reason to bother.
Gold, it was $250 back in early 80'. Not $1200. Not sure it'll go up or down. Besides, it's a way of hedging for inflation, therefore a good way to protect wealth, not a good way to generate wealth, since it doesn't produce any on-going income. Without active trading, an investor won't see any profit until selling part or all of the investment vehicle.
Hope people would point out any mistakes here, and share how you invest.
www.sunskitehomes.com
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