A Little Here, A Little There – Choosing Where

Nurture, or conditioning, is a reality we all face. Consciously or not, life around us is constantly giving messages and cues. One of these cues is that boys are inherently more interested in cars, in tools and in the more physical and technical aspects of life. Extrapolate this to 20 years later and you have a society where a lot of women feel overwhelmed with, science, math and a lot of things that are “technical” including “money decisions”. It’s simply lack familiarity, not lack of interest.

Let’s assume that you have decided to get involved in finances and to invest a small amount of money independently. The first step is to understand your motive which will determine your investment horizon. Sometimes, we need quick money and sometimes we just want to invest toward a medium to long term goal. I am not getting into how much money you want to make because of course everyone wants the maximum money fastest – but that directly means  the highest risk and least security. That’s the balance that needs to be maintained. The principal is simple – the less freely available the money is to you, the higher is the amount of money you can make.

The most basic form of investment is bank deposits where you give your money to the bank and they give you a certain interest payment for that money. This could be a regular savings deposit of a fixed deposit where your money is available to withdraw when you want it or one that locks in the money for a certain period.

Next in terms of simplicity is asset-based investments namely things like real estate. Here you buy an asset and own the asset. If you are not living in it, you lease it and your returns are in the form of an increase in price or increase in the rent rate. The downside is that other than the lease returns (which are modest in most cases), the returns are dependent on the actual sale of the asset. Also, the upfront amount of money usually entails loans which of course add complexity to financial planning. The security sometimes appears to be the highest because you “own” the asset, but do not forget to factor in the mortgage amount. You do not own it till your loan is paid out.

Finally, for this article, we have shares-based investment. This is simply owning very small amounts of companies and generating an income based on the success of that company. In the best case, the share price will rise, and dividends will also be declared. You can either own these shares directly in your name or through mutual funds wherein the fund manager invests in a changing set of companies to generate returns based on the share price. Again, the downside of shares-based investments is the risk of not being able to sell the shares of certain companies at the time you want to or mutual fund units at the best price when you need the money. However, you can invest small amounts or big, it depends entirely on your pocket.

The basic rules are based on common sense, namely, don’t put all your eggs in one basket, know what you are doing, why and for how long. Most important, never ever invest where or with someone whom you cannot ask questions to. It’s your money, no amount is too small, no question too simple and no matter what it seems like, you always have avenues to make money based on your unique balance of time, risk and returns.

This article was first published in Bahrain Woman This Month in the October 2018 issue.