Investment Planning | NCDs
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Investment Planning

The following mistakes should be avoided before you make an investment.

  • Investing without a plan. If you decide what you would like to achieve, and when to achieve it by, you can come up with a sound long-term plan that will help you get through the volatility of the markets throughout the years. You can determine what risks are appropriate for your portfolio, what assets to invest in that will help you achieve your plan.
  • Taking risks. Most of the investors opt for conventional investment options with lower risks. This may not be the best option as along with the risks, the gains are also low. You have to take calculated risks if you want good returns from your investments. 
  • Relying upon the past performance. Choosing investments based on past performance without actually knowing why they are performing well is not a smart investment strategy. Instead, choose investments with levels of risk that are appropriate for your portfolio with performance that makes sense for that particular asset class.
  • Buying Something You Do Not Understand. Just because you see an investment perform well, does not alone mean it is a good investment. Before you blindly put your money somewhere, do some research and make sure you understand what you are investing in. Find out the risks and rewards associate with each investment before deciding whether it is right for you.
  • Basing your decisions upon the media. Basing your investment decisions on what you hear being reported in the news is a mistake you should not be making. Instead of following the news, spend your time creating and sticking to your investment plan.
  • Going with the crowd. Too many people buy stocks when everyone else is buying, and sell them when everybody else sells. If you do this, you will end up buying at the top of the market when the stocks are more expensive and selling at the bottom when prices are cheaper. Take your investment decisions independently.

The concepts of Yield and Return

The return (in terms of percentage) paid on an instrument in the form of dividend or interest is called Yield. Based on the kind of investment, there are many different kinds of yields. In the debt markets, yield to maturity (YTM) is the most popular measure to quantify the rate of return paid on a fixed income instrument.

Return is the amount of money your investment increases in value, plus the money you earn on the investment. While both terms are often used to describe the performance of an investment, yield and return are not one and the same thing.. Return also referes to total return that what an investor has actually earned on an investment during a certain period of time in the past. Return generally takes into account interest, capital gain (such as increase of share price) and dividends. In other words, return is retrospective, or backward-looking. It describes what an investment has concretely earned. . In contrast to Return, Yield is prospective or advanced looking. Yield measures income like interest and dividends that an investment earns and ignores capital gains. This income is taken in the context of a certain time period and then annualized, with the assumption that the interest or dividends will continue to be received at the same rate. Yield is often used to measure bond or debt performance; in most cases, total return will not be the same as the quoted yield due to fluctuations in price.