Investment Clubs Options P4DB Essay Example | Topics and Well Written Essays - 750 words

Investment Clubs Options P4DB - Essay Example Still, this does not mean that a person should give up on the idea or desire of getting rich. 'Investing' is the option that allows a person to get affluent, provided one is willing to take intelligent and calculated risks. The second reason one must invest is that human body and mind deteriorate over time and so does the value of saved money. After having worked very hard in the youth, everyone desires to enjoy a happy and secure retired life. The problem is that the money saved by a person over time loses its worth owing to inflation (Orman, 2000). Hence, if a person has saved $ 100 one year and the rate of inflation is 5 percent, the next year that saved $ 100 will be able to purchase only $ 95 worth of goods and services. Now, imagine where one's savings will end, if one chooses to be a sitting duck before the vagaries of inflation. Hence, to make one's savings inflation proof, one ought to invest. Investment divests your savings of their laziness and makes your money work for you. Investing means making one's hard-earned money appreciate and generate income over time. 1. Before investing, an individual must be aware of one's short-term and long-term needs and requirements. Caring for short-term needs means making investments that can easily be liquidated. Such investments usually carry low returns. Providing for long-term needs means making investments that are more or less fixed over a specific period and yield high returns. One's genuine needs ought to define one's investment decisions. Therefore, if one is planning a baby next year, one will definitely have to pay the hospital bills and bear the other attached expenditures. In such a scenario, getting all one's savings entrapped in long-term investments is not wise. On the contrary, if one has young children and wants to provide for their college and university education, long term investments definitely make sense. 2. Always look forward to diversifying one's investments. Diversification means not risking everything on one endeavor. The entire motivation behind investing is the willingness of a person to take risk to get high returns. Hence, the magnitude of risk while investing is usually inversely proportional to the range of diversification (Markowitz, 1991). The more one diversify one's investments, the more is one insulated against risk. Therefore, it is always wiser to diversify investments among instruments like bonds, stocks, real estate, metals and mutual funds. 3. The investment and diversification strategy of an individual needs to be planned while taking into consideration one's age and the time left in one's retirement (Markowitz, 1991). While one is young, one can definitely afford to invest in high risk instruments in the expectation of getting good returns and optimal capital appreciation. However,