Wednesday, 12 February 2014

Prudent Investing

Every financial instrument has many dimensions to it.

1. Lock in period. (Liquidity.)
2. Hidden costs.
3. Risk.
4. Taxation.
5. Maturity/renewal cost, if applicable.
6. Investment agent commission.

The prudent investor takes his decisions after a careful review of all of the above. And not just the rate of return promised verbally by the investment agent/adviser.


In general it is best to avoid financial instruments that have too many terms and conditions, too much paperwork.

A good financial product has the following features:

A. Nature of Visibility: Product information is freely available, but it does not have to rely on paid advertising.

B. Simplicity: Minimum terms and conditions. Well defined taxation.

C. Liquidity: Easily dissolved. Dissolution time is minimum, the dissolution process is simple. Dissolution cost is known in advance and easy to understand.

D. Minimum or zero paperwork.

E. Performance: Easy to understand what you'll get from it, i.e. returns.

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