- Is the investment secure ?
- Is the investment liquid ?
- Will the investments earn income and if so, how much will it earn?
- Will the investments increase in value ?
These questions are so called investment law or investment rules that should be practiced by every serious investors to ensure their wealth will keep on increasing. This is the way how they ensure they are making good investment too.
The first question is questioning the investment security or investment safety. This is the defense strategy for making an investments and how investors can ensure their capital will not erode. Definitely, there is certain level of basic risks on making investments. To secure investment, the investors need to make sure they are invest on investment products that are transparent in management and well defined exchange system. Besides, the financial data and product information should be easily available for investors.
The second question is asking for investment liquidity. Investment liquidity is talking about how fast the investors can convert the investment into cash when he needs it. Different investment products will have different level of liquidity. For examples, the investor can sell its stocks and shares and get the cash easily through stock market, but the investor will need to look for a buyer to convert his property investment into cash. The transaction duration that required to complete the transaction is also vary and this is one of the factors for investment liquidity too. Selling a stock might take 3 days to complete the transaction but selling a property might take up to 2 weeks or even a month to complete the transaction. Measuring investment liquidity is the runaway strategy for investment as it is actually measuring how fast the investors can pull his capital out from that investment.
Earn Income through Investment
Can the investment earn income or generate income directly ? That is the meaning of the third question. The income saying here is the cash flow. Good investment commonly will generate certain level of cash flow through distributing dividends. For the later part of the question, it is asking how much can the investment generate income or earn income? To measure this, investors can use dividend payout ratio ( DPR ) or dividend yield to calculate the return. Earning income through investment is the secondary attack strategy in investment.
Value Increase through Investment
This is the main attack strategy for investment. This question is examining whether the investment can obtain capital gain or value appreciation. Good investment will increase in value after certain period of time as it is growing with time. The longer the time, the higher in value.The value increase in investment will end up increase the wealth of the investor, which is the main purpose of investment.
To conclude, these four questions in fact is an all-rounded investment law and investment rules for making an good investment. Symbolizing maknig an investment is like going to a war, all these 4 questions had covered the defense strategy ( investment security ), runaway strategy ( investment liquidity ) and attack strategy ( earn income and value increase through investment ) in investments.