What To Do With Your Extra Money?

Do you think money is the most important thing in life? Personally I do not think so but I am sure this is arguable for many! Let me put it another way, can we live without money? I believe the answer is a definite "NO"! Without question we all deal with money everyday and this tends to be one of our key driving forces in our lives! So what to do with your money when you finally receive your salary or dues from service rendered? For some, it's about time to "pamper" or reward yourself with something to spend but for others, they may be thinking about keeping the money for savings or a partial of both savings and spending. So, how do you save and what to do with the extra money? The easiest and simplest way is to keep it in a bank's saving account to earn interest or a Time Deposit account for higher interest amount (but subject to a fixed duration and is non-withdrawable). However, if you do so, you are effectively losing money as most savings or Time Deposit account only give you between 1% to 3% interests in general! Compare this with the average inflation rate of 3 to 5% and you know what i mean! So the real worth of your money actually reduces over time, also known as "time-value decay". So what are the options? Grow your money by investing in instruments that could give you a return of more than the inflation rate at the very least!

Let's explore the common types of investments...we have:

1. equity investment (stocks)
2. hedge funds (futures, swaps, options and other derivate instruments)
3. bonds (both private and Government held)
   
4. mutual funds (unit trust)
5. properties

and many other more complex money market instruments and some other "unorthodox" instruments. What I have listed above are the more common ones found.

So what's next? Basically, you need to understand what these different instruments are, how they work, and their respective potential returns and risks elements. Select the appropriate investment type that fits your risk profile. Oh yes, proper identification of your risk profile is very important! A person who is risk averse may not want to park their money in a high growth stock in which the share price of such growth but immature companies may likely be more volatile albeit potentially more rewarding! Volatility here refers to the share price being subject to major swings in both directions (ups and downs)! A faint-hearted investor definitely can't take this kind of pressure and an investment mismatch!

In my upcoming post i shall explore each type of investments and their relative strength and weaknesses. Personally my favourites are equity and property investments. Majority of my investments are with these two types of instrument.