Wednesday, April 18, 2012

Investments that work for you

When I was in college, I've been given the opportunity to work for the Marketing head of our school as a on-the-job-trainee. My boss who eventually became my mentor was so passionate about investing that everyday he keeps insisting that I should read a very good book that he's reading. 

That book was "Rich Dad, Poor Dad" by Robert Kiyosaki. It was the first book that I've read about investing and little did I know that it will change the way how I think about money and the world around me.

Let's first discuss the difference between active and passive income. Simply put, active income is something we earn while working on something. Getting paid by doing our job is a classic example of active income. People pay us in exchange of the product or services that we offer.

Passive income on the other hand, is generated without doing any work at all. Sounds good isn't it? Imagine, if you have enough passive income you'll be financially free and can do whatever you want with your life without worrying about money.

I've listed some of the most popular types of investment vehicles that I've already tested. I'll just give a brief description of each because each investment vehicle will be discussed in detail in my next posts.

Time Deposit - The bank will pay you a bit higher interest rate if you let them keep your money for a period of time. Interest rates vary depending on the bank, amount of deposit and how long your money will be locked up.

Stocks - acquiring stocks (aka shares) makes you a part owner of the company or corporation that you invested in. If the company is earning, you will be earning too (The amount depends on how many shares that you bought). This is called stock dividends or simply dividend. Mostly companies pay every quarter while some pays one or twice a year. In my opinion, this is the most riskiest and most exciting investment vehicle because the market always tend to fluctuate.

Bonds - Bonds are like promissory note that was issued to you by a company or the government in exchange of the money you lend them for a period of time. It's one of my favorite investment vehicle because its nearly risk free. Interest rate varies from 5% to 21% and are subjected to taxes. Here in the Philippines, you can buy bonds from banks like Bank of the Philippine Islands (BPI), Banco de Oro (BDO) and Development Bank of the Philippines (DBP). 

Mutual Funds - If you know little about investing, I think this the most safest way to start. Mutual funds works like this, investors purchase "units/funds" from a company that offers mutual fund services. The company have a finance manager that manages all the money collected and invests the money to different investment vehicles like stocks or bonds. 

There are still many types of investments that I want to try, like real estate and gold. However, we'll discuss in detail the four investment vehicles that are listed above.


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