Golden Rules of Investment
Before nosotros continue let’s revise the pregnant of words viz., rules together with investment inwards context of this article.
- Rules are sets of sure as shooting principles or weather condition that guide, direct, refine, control, together with regulation something or someone.
- Investment is a continuous course of teaching of action(s), for exploring the diverse financial alternatives to maximize the wealth.
Golden rules of investment used for its evaluation are depicted below.
The primary principles or golden rules of investment are equally follows:
- Growth is an appreciation or heighten or an growth inwards the marketplace value of the investment.
- Returns hateful an growth inwards the revenue or income earning capacity of an investment.
- Liquidity is the realized value or sale value of the investment made equally on today.
Now let's briefly verbalize over each golden dominion of investment.
1. Growth
Growth is an appreciation or heighten or an growth inwards the marketplace value of the investment.
An growth inwards the value is 1 of the positive factors of a skillful investment.
While evaluating the growth of an investment, next points shall hold out considered.:
- Growth tin rate notice hold out measured inwards price of an growth inwards the marketplace value of the principal amount invested. That is, an growth inwards the initial investment made.
- It tin rate notice too hold out measured inwards price of marketplace demand or marketplace analysis for the investment.
2. Returns
Return on an investment is the revenue or income earning capacity of it.
Investment needs to hold out categorized based on its high revenue earning capacity, stable revenue earning capacity, together with depression or zippo revenue earning capacity.
While categorizing investment on its revenue earning capacity regulation of render is to hold out kept inwards mind.
According to the regulation of render on an investment,
“High returns volition send a higher risk, together with depression returns volition send a lower risk.”
In other words, higher upward regulation states that whatsoever investment giving maximum returns is by together with large real risky together with the 1 that gives minimum returns is commonly safer together with bears less risk.
Following points are considered spell evaluating returns on an investment:
- Returns tin rate notice hold out measured inwards price of an growth inwards the earning capacity of the investment made.
- It tin rate notice too hold out measured inwards price of time to come commitment made to the investor.
3. Liquidity
Liquidity is the realized value or sale value of the investment made equally on today.
Liquidity is the amount of sale-considerations for an investment, provided sold equally on today.
Higher sale consideration over the investment made volition hold out considered for its evaluation.
To evaluate liquidity of an investment, next points shall hold out considered.:
- Liquidity tin rate notice hold out measured inwards price of realized value after the sale of an investment.
- It tin rate notice too hold out measured if the demand is to a greater extent than for the investment, together with render for the same investment is short.
Evaluating an investment
For instance, visit next give-and-take to empathize how to apply golden rules of investment to evaluate together with examination your investment.
Let’s assume, yous accept initially invested $10,000 inwards simply about ’XYZ’ investment scheme, plan, policy, project, venture, etc.
Now yous are interested to observe out, where your investment determination is based on the golden rules or not. For this, yous must starting fourth dimension evaluate your investing determination past times finding valuable answers of the next 3 of import questions:
- (Q.1) What is the departure betwixt the electrical current marketplace value of XYZ investment (as of today) when compared amongst the starting or initial investment made? ($10,000).
- Answer: If the acquaint marketplace value of XYZ investment is to a greater extent than than $10,000 (actual amount initially invested), together with hence yous tin rate notice conclude that your investment is showing ’growth’ together with vice-versa.
- (Q.2) What is the income or revenue generating capacity of XYZ investment?
- Answer: Here, yous must depository financial establishment gibe whether XYZ investment is giving a high render / stable render / depression or zippo return. The categorization of it must hold out done based on the percent of returns. That is, high percent of income or revenue earned past times it implies higher render together with vice-versa.
- (Q.3) What value (amount) XYZ investment volition fetch if it is realized or sold today inwards the market?
- Answer: Here, yous must examination whether the XYZ investment tin rate notice hold out easily realized or sold inwards the marketplace or not. If it is sold inwards the marketplace today, together with hence what value or amount, it volition fetch must too hold out flora out. High realized or sale value of it volition imply that it is highly-liquid together with vice-versa.
Once yous accept successfully evaluated XYZ-investment based on your laid answers collected amongst honor to the higher upward 3 questions together with hence yous tin rate notice continue farther to compare them amongst investment-decision given inwards the next table.
The 3 golden rules of investment viz., Growth, Returns together with Liquidity tin rate notice hold out applied to whatsoever type of investment.
If these rules are applied wisely together with amongst due care, together with hence an investor tin rate notice never permit his or her investment larn bad.
Conclusion
From higher upward discussion, next conclusion tin rate notice hold out derived:
- The higher upward discussed parameters / weather condition / rules tin rate notice hold out applied to whatsoever type of investment.
- The golden rules assistance to test, verify together with conclude whether the investment determination is a skillful (right) 1 or bad (wrong) one.
- These parameters involve to hold out evaluated properly together with promptly correct from the introductory phase of the choice of an investment, together with too used afterwards at regular intervals 1 time investment is beingness made.
- This evaluation procedure based on the golden rules of investment overall helps an investor to cause upward one's take away heed the efficiency together with status of his investment.
- Such a constant review volition assistance an investor to avoid the opportunity attached to his investments.
- Furthermore, this volition too assistance an investor to explore the novel opportunities to maximize the income earning capability of the invested funds.
- If evaluation is done properly together with regularly, together with hence no investment volition always plough into a bad one.
