Quickly, cheap or qualitatively? Characteristics of investments of
Many remember a joke - advertizing: “We to you will make everything quickly, qualitatively, cheap. Select any two items“. It only in a form a joke, and in fact - harsh realities of life. All three clauses in practice at the same time almost are never implemented by
. Or services are qualitative and timely, but are expensive (performers take the price, usually such services are exclusive, focused on the wealthy client), or are qualitative and cheap, but are carried out very slowly (performers take volumes, such services are focused on wide audience, standards) or we deal with frank hack-work (quickly, cheap, but it is low-quality).
This rule works in the world of financial instruments too: any financial asset (actions, bonds, precious metals, real estate, etc.) have three key parameters: profitability, liquidity and risk.
Profitability is an efficiency of a financial instrument - size arrived to unit of investments. Risk - probability of loss of invested funds as a result of various a swagger - major circumstances. Liquidity - the speed of realization of an asset, i.e. its transformation into money - an asset with the maximum liquidity. And so, it is at the same time almost impossible to provide high liquidity (quickly), good profitability (qualitatively), low risk (cheap). Select any two items.
Highly liquid and profitable assets are actions of the large companies. They are bought willingly, on them pay good dividends, they can be sold with good profit, but also the risk of investments in them is rather big. In stock market collapses and crises are frequent. Highly liquid and low-risk assets are money, foreign currency, deposits, bonds, etc. However money in pure form does not make any profit at all, and the profit on deposits and bonds is rather modest. There are high-profitable and rather low-risk assets, but at them liquidity suffers. It is real estate, the earth, precious metals. To sell them sometimes very difficult, long and it is unprofitable. For example, at sale of precious metals to the state in Russia 18% a tax which can “eat“ all got profit are raised.
However, many of us have an asset highly liquid, absolutely risk-free and very profitable: these are clever fingers, iron health and a clever brain.
Besides three main characteristics of any investment (profitability, liquidity and risk) there are also others as being derivative of these three, not dependent on them.
The most important characteristic to which first of all pay attention, considering expediency of the offered investment - a payback period . This characteristic is size, the return profitability. If profitability is equal to the size of the income from investment for the set time (day, week, month, it is the most frequent - year), then the payback period is time for which the income from investment will be made even to the enclosed sum, taking into account additional expenses, taxes, etc. After this term the acquired asset begins to make for the owner profit.
Certainly, other things being equal the preference should be given to an asset with a smaller payback period, but trouble that this term seldom manages to be determined precisely. All characteristics of assets are the statistical estimates received on the basis of characteristics of similar investments for already come true time period.
But a situation in the financial world the legal framework, a political situation, climate, fashion constantly changes, changes … Therefore the payback period calculated on the basis of statistical data bears in itself an essential error, and in both parties. The payback period is especially important if the investment is made by the money taken on credit. In this case the payback period should be coordinated with the crediting term as delay of payment of the credit povlecht additional expenses and can significantly reduce profitability of investment and even to call its expediency into question.
Other important characteristic of an investment - profitability . Profitability is also function of profitability and is equal to the profitability relation to investment size expressed as a percentage. Profitability is more convenient for the analysis of investments, than the profitability expressed in an absolute value: it is easy for profitability of various investments to compare with each other. Profitability most often as a percentage of annual is measured.
One more essential characteristic - a threshold of entry . It is the minimum extent of starting investment with which it is possible to begin operations with the chosen asset. For the person with middle-income this characteristic cuts the majority of very attractive opportunities, suitable both on profitability, and on risk, and on liquidity, and in all other parameters. Really, if entry into business requires one billion rubles, then for most of people such subject is closed at once, even on credit they are not able to receive such sum. Than the threshold of entry is lower, the asset is considered that more democratic: the circle of potential investors becomes wider, and the competition is higher.
A scope, field of knowledge - one of important characteristics of an investment. For the investor it is important to have some knowledge, and it is better to be the expert in that area to which he makes investment. Of course, for the shares holder, say, Gazprom is not obligatory to be the expert in the gas industry at all, but the buyer of housing for leasing has to which - what to know about the market of real estate, and the businessman has to understand the area thoroughly. The success of its business, so both profitability, and risk, and liquidity will depend on his knowledge in no small measure.