The Perfect Investment: Is There Such a Thing?

Perfect InvestmentBy Tristan Ellis, Staff Writer

Have you reached a stage in your life when you can pay your bills easily and you have extra cash every month? Or have you received an inheritance, a large bonus, or a plan’s distribution?

The Dream:

Imagine putting that extra money to work for you with a perfect investment that:

Offers a high rate of return.

You would receive a return high enough to beat inflation and taxes, and meet your goals.

Is completely safe.

You’d never have to be concerned that you’d lose any part of the investment.

Can be redeemed at any time.

You could get your cash at anytime every day of the year without any penalties or losses.

Provides freedom from income taxes.

You’d get to keep everything your money earned.

Requires no skills or knowledge.

You could forget about the investment and just enjoy your life.

The reality:

The perfect investment of your imagination does not exist. In the real world, you, as an investor, have to choose from confusing investment tools, each with their own characteristics and purpose. The following questions can help you select the best investment for you and your goals:

Why are you investing?

You may need additional income to meet your current expenses. Or are you saving money for retirement, a child’s education, dream vacation, or for a source of emergency funds?

When do you need the money?

Consider when you’ll need the money. Investment goals such as retirement do not need to be as liquid as an investment goal of having access to emergency funds. Liquid refers to how fast an investment can be turned into cash without losing any dollars.

How much risk are you willing to take?

Can you afford to lose a portion or even all of your money? Think about the impact of a loss may have on the investment. Generally, the higher the risk, the higher potential return. And the lower the risk, the lower the potential return.

Are income taxes a concern?

Sometimes income taxes can have a large, negative impact on your investment results. For example, many people with high income invest in municipal funds because the bonds’ interest is generally exempt from federal, and often state, income tax. Qualified retirement plans, life insurance policies, and annuities are preferred to accumulate money for retirement, because no taxes may be due until the money is withdrawn.

What is the economic outlook?

As you probably experienced recently, the state of the economy can have an effect on everything including investments. The times when inflation is high, tangible investments such as real estate, precious metals, and collectibles have tended to garner good results. During stable or declining inflation, intangible assets such as stocks and bonds may do well.

Do you have what it takes to manage the investment?

You may not have the specialized skills, experience, and knowledge you need to select or manage an investment. Consider getting professional investment advice or investments where such advice is available.

How much money do you have to invest?

What you can or should invest in depends on how much money is available. Direct investments in the stock market may require a large investment, but many mutual funds take smaller monthly investments.