Investing in financial instruments is widely regarded as an advisable and profitable channel of income-generation. However, the risks of incurring large financial losses remain too, particularly if you are a newcomer in the financial market. In fact, prudent investment decisions need to be formed, so that profits can be enjoyed, over the long-run too. There are many professional business firms that offer investment services to individuals. Apart from taking help from these firms, individuals also should hire an expert financial planner. The latter would be able to provide knowledgeable and viable financial planning advice to clients. Such advice, if followed properly, can go a long way in securing the financial future of the investors.

Recommendations related to financial planning and investment services can be varied in their nature and quite large in quantity as well. Some of the very basic rules that need to be followed while forming investment decisions are:

a) A certain portion of income needs to be put away as savings on a monthly basis. A portion of all increments should also be saved. This helps people build a decent stock of wealth over time.

b) Investments that are deemed to be extremely risky should be avoided, at least when one starts out in investment.

c) While making investments, individuals need to diversify their portfolio. Ideally, not more than five per cent of one’s total invested amount should be in a single sector. This, guards against any potential drastic losses due to a severe downturn in a particular segment of the market.

d) The basics of borrowing from different sources, including banks, need to be thoroughly understood. In particular, one needs to know the difference between the quoted ‘nominal’ interest rate of banks on loan amounts, and the actual ‘effective’ interest rate that is charged.

e) The frequency of payment of your interest (monthly, quarterly or yearly) needs to be kept track of. If people do not have the time or knowledge to invest directly on shares and monitor the proceedings, they can invest on unit trust funds as well, and

f) The costs of the different investment products need to be considered. A detailed break-up of the different components of the total cost should be studied. Cost levels vary across investment instruments, and one should know if they are too expensive or not.

The above are some of the simplest financial investment advice, which a financial advisor might provide you with. These would help to a great extent in ensuring that the investment decisions you take are correct, profitable ones.

Once you get a handle on a few investment basics financial planning and investment management get a whole lot easier. Here are 5 investment basics or factors you need to consider before investing money.

Much of financial planning involves investment management and selecting the best investments to reach your financial goals. There are long-term goals like accumulating money for retirement or earning more investment income in retirement. And there are shorter-term goals like putting money aside for future college expenses, for a cash reserve, or for a down payment on a new house. What investment basics should you consider before investing money earmarked for specific goals? Keep in mind that the first step in financial planning is to define your financial goals.

For shorter-term goals SAFETY and LIQUIDITY are the investment basics that take center stage. Here you are investing money that needs to be safe and available when you need it. The best investments in this case are the likes of bank CDs and savings accounts, money market mutual funds and perhaps short-term bond funds. Don’t earmark stock funds or other riskier investments for short term goals. The cash you need might not be available when you need it if the market goes south at the wrong time.

If you are doing financial planning to accumulate a retirement nest egg you have a long- term financial goal, and GROWTH and TAX ADVANTAGES are the investment basics to concentrate on. Growth simply refers to earning a higher return over the long term. The best investments for most people here are stock funds, which come in many varieties. How much of your investment portfolio you allocate to stocks will depend on your age and risk tolerance. Here is where investing money in stocks and accepting more risk makes good sense. If you have a bad year or two you’ve got time to recover and won’t need to liquidate or sell at a loss… because you have this money earmarked for retirement, and other funds like a cash reserve to cover short-term needs.

Look for tax advantages when investing money for retirement. In a 401k or traditional IRA most people can accumulate money tax-deferred, with a tax deduction each year you add to it. There is no limit imposed by the IRS on the amount you can invest in a tax deferred annuity, and a Roth IRA offers tax-free investing. If you invest $5000 a year into a stock fund averaging 10% growth per year in a tax-free or tax-deferred account your money grows to $286,000 in 20 years. This money can continue to grow uninterrupted by taxes until you start pulling money out in retirement. In a Roth plan there will be no income taxes to pay if you follow the rules.

The last factor to consider is INCOME. For most people in search of higher income or interest, bonds and bond funds have been the best investments over the years. Millions of retired folks invest in bonds to supplement their income. Investing money in bonds for the income they produce is secondary for average younger investors, who should include bond funds in their retirement portfolio primarily to add balance and decrease overall risk. Please note that bonds and the funds that invest in them are not without risk. There are numerous articles available on the subject.

Now you know the 5 things you need to consider in investment management, selection and financial planning. I call them the investment basics. Don’t invest money without them.