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Personal Finance Tips on Investment

By Charles Hopkins Published 09/19/2006 | Finance

Personal Finance Tips on Investment

Unlike our ancestors and even our previous generation, we, the present generation of professionals; are living through the most peaceful phase of the human history. Barring the threats of terrorism from time-to-time, there is no indication of a major war in the horizon and the reflection of this politically peaceful time gets reflected in the global economy which is presently bustling with activities. As an outcome of a flourishing economy, a wider spectrum of investment avenues are thrown open for the common people. Today the investors are rather spoiled in their choices. You can opt for these multiple investment schemes like stocks, bonds, mutual funds, savings bonds, etc.

In addition to these common types of investment tools, you can also make safe investments in real estate investment trusts (REITs) or variable annuities. But before making an investment, you should be well aware of the fact that no investment is free of some level of risk. The key to making a successful investment is the ability to understand the extent of risk factors associated with particular kinds of investment tools. Here are some tips to help you make a more intelligent move with regards toward personal investment.

Dont Believe in the Hype

The first step toward making an intelligent investment move is to learn about the product. Sometimes you will find great hypes surrounding a certain financial product. Never trust these hypes to be true; these are the parts of an intelligent marketing mechanism. Do your own research and try to understand the pros and cons of the product. It is your money, so take an informed decision on the basis of your judgment and intuition, dont go by the tall claims of the sales persons who are trained in glorifying the products they sell.

Go for Diversification

Do not get over obsessed with a particular sector while making your investment. Different sectors fare differently under the diverse performance of the economy. So some of your investments will keep on reaping benefits at certain circumstances, while the others may not do well in the similar situation. This is why you need to diversify your investments. As for example, you get a higher interest rate on your savings deposited in banks, while your bond prices might be going through a phase of depreciation. Thus from one investment you may get lower return, but from another sector you will get a better return. This diversification also helps to reduce your risk.

Tax Saving Investment

Try to put your money in the products that offers you a reasonably good tax exemption. As for example, Municipal bonds are exempt from federal income tax and in some states they are exempt from state income tax too. Then, you will be able to make tax-deferred investments in your retirement fund. If you choose to invest in U.S. Savings Bonds you will get an exemption from state and local taxes.

Return and Exit Policy

Make sure of the exit policy of the investment and also ask how quickly you will get your money back? You can sell the stocks or bonds any time, but there is no surety that you will get back the amount you have paid. Your earning from the investments mostly varies with the economic fluctuations, though you get a fixed return from the bonds. And do not get baffled by the past performances of any financial product. Take decision by keeping any eye on the present market scenario.