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The ways to increase our assets and what kind of tools we have for it
The basic groups of financial instruments are given in the AIMIYA program, which are known to everybody but actually not used by all people. There is a big number of financial tools, but greater part of them is used by professionals, and today can be considered critically, because the use of the so-called derivatives, such as swaps, futures, options etc., partly leaded to the beginning of the financial crisis raging today. Therefore it seems important to us to understand thoroughly the basic principle of every tool and to find an efficient application to each of it.
Cash or me
It’s seems to be the simplest tool for making money, but actually for many people the only way of earning money is getting salary, in other words the sum for which we are selling ourselves. That what we get for our work is the most liquid tool, that brings no more additional profits (interest income or dividends) and which we can exchange for other, less liquid types of assets or spend on food.
Usually we think it over much later and at times we can regret about wasted on our studying time and about the wrong choice of the profession which does not bring us the sufficient level of the profit. So a lot of people do not dare to change something in their lives till their death. Actually, it is quite normal, because a risk to lose even what we already have rises in course of time: job, respect of other people and possibility of promotion.
In fact it is also possible to manage such instrument as ourselves, and to increase our potential, raising the level of our accumulations and approaching to the set financial goal.
Firstly, it’s connected with getting of the additional education, and only the best from the best in the profession will obtain the greatest results. Therefore you should always plan the process of studying and trainings, putting some part of the assets in it, even if it is not done directly by an employer, it will definitely bring you profit in the future.
Secondly it is a permanent attention to the work and to those tasks which have to be executed. In other words it is the desire to make a career. Any employer always will notice and make special mention of a man which executes the same work faster, better, with enthusiasm and he will promote this man in any propitious occasion.
And the last mean in this case is budgeting, that is the economy of the earned assets due to the control over costs and also using the worldly wisdom (discounts, for example) for the increase of level of your accumulations.
However cash is cash and it is not able to bring a great additional profit comparing to other financial tools.
Deposits
Deposits, probably, is the second popular financial tool and it is actually justified. It is one of the eldest financial tools which people use many centuries. Placing of the assets on a savings account, or acquisition of the deposit certificate does not require additional time or knowledge. It can be done in a bank in which you are served and the only thing that is very important to do is to define a correct term on which you are ready to tie your money up. In this case you’ll get an interest income that will be a good addition to your main work.
Usually, deposit rates are very low and scarcely will protect your assets from inflation, but at the same time it will be the first financial tool which is also very reliable.
Undoubtedly, in case with deposits it is advisable also to make sure of borrower’s stability (in this case it’s a bank). Especially today, when even large banks can suffer from the consequences of the world financial crisis and small banks are fraught with big risks. They can offer a heightened deposit rate or additional bonuses. Therefore it is always better to know more about the bank which you want to entrust the assets for a set time, and it’s also possible to divide your money into a few parts and put them in different banks.
Bonds
Basing on the degree of risk and profitableness bonds are placed between deposits and stocks and they are an unsecured debt of commercial companies to you. In this case you actually credit business. It’s considered that “gentleman’s preferred bonds”, and one should increase the bonds portfolio with the course of time and reduce more risky stocks portfolio.
However bonds also can be a quite risky tool, if the company in which you put your assets to is a new one and it does not have a reliable reputation yet. Also in this case you begin to accept the particular branch-wise risks and for estimating them you’ll have to spend a lot of time. The profitableness of such bonds will be far higher, than profitableness of the reliable issuer.
On the whole, bonds are good in independent investing and in investing through to the funds guided by investment companies.
Stocks
Stocks it is the most risky instrument among all financial tools that requires a certain degree of financial preparation. Probably, in this case it will be better to trust appropriated funds for investing into the stocks to the professionals and to purchase the shares of the most reliable fund or to transfer them to the authoritative company. However if you decide to act independently, in this case it’s necessary to remember and to follow carefully the basic rules of investing and to shorten the risk in reason. More information about methods and rules of stock investment you can find in other articles “knowledge base”.
My business
It is one of the most exciting tools, which is given to us and often people choose either work, in this case they use only own forces and knowledge as a basic source for earning money, or creation of own business.
Undoubtedly the potential of such type of investing stands on the first place, because in this case you can realize your ambitions in full and get the whole part of the created by you extra cost of a product or service.
In most cases people succeed to create a small business, like cafe or small shop. In this case earnings will be comparable with the salary of a of an average office worker, or hardly higher, and at times one has to work even more than an average employee. On the other hand you can not be fired, because such decision is accepted by you, and only the market and competition will show, if you are able to create a competitive business or not. Using such a financial tool simultaneously with the main job is sufficiently difficult, because it can take a lot of your time. It is considered that it is correct to try to combine your own business with the main job until you will decide with the prospects of your own business, and also until the permanent profitable part will become clear.
One should notice that for further development of own business, one might need the additional knowledge in management, or in management of a particular branch specific, getting of which would definitely require the additional time and finances.
But as we said before, afterwards it can be repaid to you with interests and can bring you much closer to your financial goal.
Debts
Loans and credits similarly can be attributed to the financial tools, only unlike the above-described assets they are your debt, because you will have to pay for them the interest payments to the creditor (borrower).
These tools can play a nasty trick on you while unskillful handling with them. On the one hand they can repeatedly increase your income and quickly bring you closer to the cherished aim, or to give you an acceleration in your development as in the case with own business, that again will bring you a considerable increase. On the other hand, the usage of these tools can accelerate the process of your destruction and can deprive you of a control over the situation at hard times.
It is considered that at the growing market the usage of credits stimulates the increase of the profitability, while at the falling market renders a reverse influence, repeatedly increased due to leverage, i.e. the ratio of debt funds toward own.
In any case the usage of the debt funds must be conducted at presence of a considerable investing experience. To secure own risks, it’s better consult with the financial consultants which will help with the choice of debt tools and their descriptions, and also can assist in the process of preparation of the necessary documents for their receipt.
Conclusion
In this article we gave a short description of the most popular and accessible to all financial tools uniting them in groups sorted on the basis of Profitability vs. Liquidity.
In the future we will spare greater attention to every instrument separately and also to the general portfolio which can be formed from the available financial tools.
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