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The Sundaytimes Sri Lanka

Smart investments

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There is a wise old saying; “Do not put all your eggs in one basket.” In the modern setting such advice becomes more valid as the avenues for investments are many and intricate for making rational decisions in terms of which, where, when, how, how long and how much to be invested. Therefore, the most important matter to contemplate in decision making for investment would be “the risk of investment” that can be defined as the measurement of “anticipated returns” for any given time period. Besides the fluctuations of expected returns, the risk of investment today would be colossal as loss of the total invested money as the risk of investment increases alone with increasing influence of globalization and increasing economic, social and political turbulence in any country setting.

In the Sri Lankan context, there are four main avenues to invest money. These are cash, fix interests, property and share. However, these four categories have different behavioral patterns and differ in making returns to investment. An asset, whose future return is known today with certainty, is fixed interest asset. Examples for fixed interest or risk free interest are bonds and bank fixed deposits. The interest rates of the above do not change with respect to time though the returns are low compared with certain other investments like investments in the share market. Investing in share markets is riskier than the “fixed interest” investments. Thus, a difference in return to investments is largely explained by the degree of anticipated or actual risks of investment involved.

However, there are many strategies to minimize the risk. One strategy would be to buy shares when rates are down and sell when rates are up. For this, one has to be watchful of share market behaviour. The share market investors are also benefitted from dividends. Some invest local money in foreign currency accounts. This type of investment requires knowledge, experience, high computer literacy and perhaps a bit of luck. Currency markets are highly volatile and one needs to be familiar with the dynamic factors that influence currency values in order to make successful investments. There are published research studies to consult in order to familiarize with the above factors and help those keen, to keep up with trends and make fairly profitable currency exchanges.

Investing in properties is also quite popular. One of the main differences between investing in properties as compared to stocks or bonds is that property is an investment in the “bricks and mortar” of a building and the land it is built upon. This makes property investments highly tangible, because unlike most stocks you can see and touch it. This often creates substantial pride of ownership, but tangibility also has its downside because real estate requires hands-on management.

Under the ‘eggs’ quotation, the smart investor would invest money in different categories mentioned above. For this one needs to analyse returns and risk of investment in cash, fixed interest, property and shares. Basically, total assets that are available to one can be allocated into all the four fields as portions.

For this, subcategories in one main category should also be considered separately. For example the currency market, sub-categories are American and Australian dollars and for the share market diverse categories are different industries and companies. Furthermore, sub-categories for the property market are commercial residential, land, house, vehicle…etc. and for the “Fixed interest” sub-categories are bonds, fixed deposits . etc. Afterwards, within the sub-categories, assets can be allocated so that the return of the sub-category is maximized and at the same time risk of the sub-category is minimized.

In order to practically apply the above strategies, the investor needs certain analytical skills. For this, certain user-friendly computer packages and various Microsoft Excel templates can be used. For online trading in the currency market, the most popular website is “FOREX.” For this website, free training videos are available on the internet. Furthermore, numerous user-friendly computer packages and various Microsoft Excel templates are available for other types of analysis.

To help invest in the local share market, there are many online trading methods such as “CDAX.” There are also many investment consultants available for consultation and they offer tailor-made and ready-made analysis. Sri Lanka has a pool of proficient investors. On the other hand, many others are lacking knowledge, information, communication technology and experience however, of investment strategies. If Sri Lanka provides suitable knowledge/training to the latter we will be a better competitor in the global market.

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