What should I invest in?

Once you determined that yourself is financially ready to invest. The next question that will come to your mind will be "What should i invest in?". "What investment choices do u have?".

Investment instrument #1 : Stocks

Stocks are shares of ownership in a company. Collectively, the company is owned by all its shareholder, and each share represents a claim on its assets and liabilities. There are many ways to classified the stock market. You can classify the market by company size, sector, and type of growth patterns.

As the stock markets move on the financial realities of the economy as well as based on people's expectations and emotions(mainly fear and greed), investing in stocks can be very volatile in the short term. And while it is true that everything that goes down must come up, especially in the stock market - following Warren Buffet's example of swiping everything of value that is offered at a discounted price is just not for everybody.

Thus, before you start investing in stocks, you need to ask yourself whether you can stomach the short term volatility. Investing in stocks must be considered as a long-term endeavor if it is to be successful.

Investment instrument #2 : Bonds

Bonds are similar to fixed deposit, except that bonds are securities that you can trade in the market with fluctuating value. There are many types of bonds, they differ from one another according to a number of factors - length of maturity, credit quality, and the entities that issues the bonds. Example of the types of bonds include sovereign bonds and high yield bonds.

Bonds are generally perceived to be safer than stocks. However, it is not without risks. The main risks lies in the credit risk, with the credibility of the issuer of the bond constituting a major factor as to how risky the bond is. Credit agencies such as Moody's, Standard & Poor's and Duff & Phelps rate the credit quality of the bonds and its probability of default. The lower a bond's credit rating and quality, the higher the yield you can expect and rightly so.

The latest euro zone crisis has shown the world that all investment vehicles contain the element of risk. The collapse of MF Global after the decline in value of its substantial sovereign debt-related holdings shows that even governments can default.

Another risk for holding bonds is the foreign exchange risks. When the investment is in one currency (e.g USD) , and is different from the functional currency of the investor (e.g Singapore Dollar), the investor is exposed to foreign exchange fluctuation. The foreign exchange exposure may add or reduce the value of the bond investments depending on the movement of the foreign exchange the bonds are denominated.

Investment instrument #3 : Real Estate

If you have already bought your own home, using real estate as an investment may interest you. Over the last few years, real estate investing has generated healthy returns for its participants. Will this trend continues or its success succumb to the on-going euro zone crisis?

Real estate is different from most other investments because you can borrow 60 percent to 80 percent of the value of the property to buy it. Thus, you can use your down payment of 20 percent to 40 percent of the purchase price to buy, own and control a much larger investment; this concept is called leverage. You certainly hope that the value of your real estate goes up - if it does, you make money on your original dollars invested as well as on the money that you borrowed.

Are you ready to invest?

As mentioned in the previous post, investing is exciting and action packed. Investing is the way to grow your money. However, most people forget to ask themselves whether they are in the position to invest. "Are you ready to invest?" As with everything in life, there are two sides to the coin.

On the one hand, the current euro zone crisis could be taken as a clear warning for you to rush out and away from the market. On the other hand, the euro zone crisis can be a signal for long term investors to slowly work their way into the market with the belief that crises are often opportunities in disguise.

Before you start to invest, it is important that you get your financial house or financial statement in order. Certainly you want to earn a good return on your investment without being clobbered. Only when you have systematically reviewed your finance will you be able to assess your readiness to invest in the future.

Establish your cash flow statement

You should be able to keep track of the direction of the cash flow, whether it is getting in or getting out of your pocket. You can track your cash flow by tabulating your monthly income and expense. If you have more money inflow than your outflow, then you are financially sound.

Determine your asset and liabilities

Next, you need to determine what are your assets and liabilities. Someone who has many assets and few liabilities will certainly be more financial ready to invest than someone who has few assets but many liabilities.

Have an emergency fund

Life is unpredictable.No one can predict what life brings, so having a really accessible reserve of cash to meet unexpected expenses make good financial sense. Examples of unexpected expenses include doctor visits, rate hikes in utilities, computer repairs just to name a few.You certainly do not want to be in a situation where you have to sell your investment during a down period to meet you financial obligation.

  Finally, while the investment market has been volatile for the last few months with the on-going euro zone crisis, it is still important for someone to invest to gain financial independent. Understand where you stand financially is the first step towards a sucessful investment. It helps you to recognise which instrument is in your best interest according to yout current financial situation.