Investment Risks You Must Know (2)

6. Non Diversification Risk
Diversify your fields of investment. DO NOT put all eggs in one basket. Asset allocation and diversification can protect against non diversification risk because different portions of the market tend to under perform at different times.

7. Liquidity Risk
Liquidity Risk arises from difficulty of selling as asset. An insufficient of secondary market causes investment cannot be bought or sold quickly enough to prevent or minimize a loss when credit rating falls.
Some assets are highly liquid and have low liquidity risk (such as stock of a publicly traded company), while other assets are highly illiquid and have high liquidity risk (such as a house).

8. Gearing Risk
Gearing is borrowing to invest, or investing in leveraged assets such as installment warrants or options. Most businesses require long term debt in order to finance growth, however, the introduction of debt and gearing increases financial risk. the higher the level of gearing, the higher the level of financial risk due to the increased volatility of profits.

9. Legislative Risk
The risk that a new law or a change in an existing law by government could have a significant impact on an investment. It could significantly alter the business prospects and adversely affecting investment.
You should be aware when investing in foreign countries because countries that may often change policies and undergo political transformation are prone to legislative risk.

"Rule No.1: Never lose money. Rule No.2: Never forget rule No.1" Warren Buffett

Investment Risks You Must Know (1)

In the investment world, risk is inseparable from performance and, rather than being desirable or undesirable, is simply necessary.

1. Mismatch risk
Trade the wrong investment products which doesn't suit with investment budget. Or investing in something that is inappropriate for your investment needs

2. Inflation risk
The risk that the rate of inflation will exceeds the rate of return on an investment. For example, if the rate of inflation is 5% over a year and the rate of return is 3%, then the investor has effectively taken a loss even though investor has made a profit in absolute terms.

3. Interest rate risk
The change of interest rate may decrease the return of investment. This may happened when current interest rate is lower than the interest rate when you invest.

4. Market risk
The value of investments may increase or decrease over a given time period simply because of economic changes or other events that impact large portions of the market. It means that your return of investment can increase or decrease at such a time.

5. Market timing risk
Market timing risk is different from market risk. Market risk affected all investor however, market timing risk is the risk that an investor takes when trying to buy or sell a stock based on future price predictions.

"Risk comes from not knowing what you're doing." - Warren Buffett

Palm Oil Advances to 27-Month High, Extending Longest Rally Since 2007

Palm oil climbed to the highest level in more than two years, extending a 10-week rally, the longest since June 2007, on concerns that supplies are not rising fast enough to meet demand.

The January-delivery contract on the Malaysia Derivatives Exchange gained as much as 4.9 percent to 3,348 ringgit ($1,084) a metric ton, the highest price since July 18, 2008, and traded at 3,302 ringgit at 4:14 p.m. Prices had advanced 26 percent in the past 10 weeks.

Edible-oil prices may increase as growth in global supply fails to keep pace with the rise in demand for a third year, with weather patterns hurting crops, according to Godrej International Ltd. Director Dorab Mistry.

Palm oil may gain to 3,300 ringgit in the next few weeks and extend gains in 2011, according to remarks Mistry prepared for delivery at the DCE oilseed conference in Guangzhou, China yesterday. Soybean oil in Argentina, the largest exporter, may climb to $1,250 a ton by December, raising his forecast from $1,050, he added in a separate email.

“We have looming supply problems in wheat, in rice, in corn, in canola, in sun seed and, above all, in soybeans,” Mistry said in his speech. “We must therefore begin to give up too many thoughts of any meaningful decline in vegetable-oil prices during 2011.”

Rainfall in Malaysia, the world’s second-largest palm-oil producer, may be as 40 percent above normal in November and December as a La Nina weather event strengthens, according to the state forecaster.

Discount Narrows

Palm and soybean oils are the most consumed edible oils and are substitutes. Soybean oil in Chicago added as much as 1.2 percent to 52.85 cents a pound, extending the 1.9 percent rally on Nov. 5 to the highest intraday level since Sept. 3, 2008.

Palm oil traded in Malaysia, closed for trading on Nov. 5 for a religious holiday, tracked the rival oil higher today as soybean oil’s gains left palm oil trading at the smallest discount in four weeks, according to Bloomberg data.

Mistry, who has been in the industry for more than 30 years, correctly forcast in March that palm oil would top 3,000 ringgit after June on lower oil palm yields, and then test 3,200 ringgit. He will make his next prediction at a conference in Bali in December, he said.


Godrej is one of India’s biggest buyers of cooking oils.

“Dorab does have some effect,” said Arhnue Tan, a senior analyst at ECM Libra Capital Sdn. said of Mistry’s forecasts.

Tightening supplies and “inelastic demand” from countries including China will extend the “crazy” price rallies this year, Tao Chen, chairman of Louis Dreyfus Commodities (Beijing) Trading Co., said at the same conference yesterday.

Chinese Imports

China’s soybean imports in the 2010-2011 marketing year may be as much as 60 million tons, according to unidentified global grain trading companies cited by the China National Grain & Oils Information Center on Oct. 25. The center’s own forecast is for purchases of 54 million tons in the year that started Oct. 1, compared with 50.3 million tons a year earlier, it said.

Supplies of soybean, palm, coconut, groundnut, cotton, rapeseed and sunflower oils will rise 3.5 million tons in the year to September 2011, according to Mistry. That’s less than the 3.8 million-ton gain he forecast on Sept. 26. Demand in the same period would rise as much as 5 million tons, he said.

An El Nino-induced drought hurt oil-palm yields in Indonesia and Malaysia, the largest producers, this year, while a La Nina-induced drought delayed planting of the South American soybean crop and hurt yields.

“Weather disturbances in the form of drought, wet springs, flooding and frosts have been more evident this year than any other year I can recall,” Mistry’s text said.

In China, palm oil for September delivery in Dalian surged as much as 4.4 percent, and closed 2 percent higher at 9,466 yuan ($1,419) a ton. September-delivery soybean oil rose as much as 3.1 percent, before closing 0.3 percent higher at 10,192 yuan.

CME Group Inc.’s January palm oil contract, pegged to the Malaysian benchmark price, advanced as much as 2.9 percent to $1,081.75 a ton, the highest level since the contract began trading in May.

Link: Bloomberg

Types of Investments: Where you can Invest your money in (2)

4. Mutual fund
Mutual funds have become extremely popular over the last 20 years. It is likely a company that brings together a group of people and invests their money in stocks, bonds, and other securities. Each investor owns shares, which represent a portion of the holdings of the fund. The primary advantage of funds is the professional management of your money. It is a relatively inexpensive way for a small investor to get a full-time manager to make and monitor investments. At the same time, risk is spread out by owning shares in a mutual fund instead of owning individual stocks or bonds.

5. Commodities
Commodities are raw materials used to create the products consumers buy. It include agricultural products such as wheat and cattle, energy products such as oil and gasoline, and metals such as gold, silver and aluminum. Commodities investment is a investment related to "future market" through a future contract, which is an agreement to buy or sell in the future a specific quantity of a commodity at a specific price.

Examples:
A farmer can sell a crop before it’s planted, even though he might get a better price in the future (which is where the name comes from.) If a boom in demand drives up prices by harvest time, the buyer of the futures contract wins. But if a bumper crop floods the market and prices plunge, our speculator could lose everything.

Commodity contracts typically let you control large amounts of gold, oil or soybeans with relatively little money, small price moves have a much bigger impact on your holdings. Those price moves can be extremely rapid and unpredictable, so Commodity investment come with very high risk.

6. Real Estate
Real estate investment involves the commitment of funds to property with an aim to generate income through rental or lease and to achieve capital appreciation. Real estate investments need a larger capital and longer period to generate returns.Investors also need a good knowledge of the real estate market. Common examples of investment properties are apartment buildings and rental houses, in which the owners do not live in the residential units, but use them to generate ongoing rental income from tenants.

The owner (landlord) earns a continuous stream of rent from the tenant, but is responsible for paying the mortgage, taxes and any costs associated with maintaining the property. The owner also benefits from capital appreciation (a rise in the value of the property over time). The landlord runs the risk of not finding a tenant and could suffer negative monthly cash flows, with mortgage payments and maintenance expenses still to be borne.

Types of Investments: Where you can Invest your money in

Previously we had discussed briefly the concept of investment. Now let us have a look at option of investment where we can roll our money in. Your choice of investment greatly depends on the amount of cash on hand.

1. Cash Investements
Cash Investment includes saving bank accounts, certificates of deposits and life insurance policies. Investors can benefit from the lower risk and high liquidity of cash flow in such investments. It generally regarded as one of the safer ways you can invest your cash. However,cash investments provide low interest rate and a risky option during inflation.

2. Bonds
A bond is a formal contract to repay borrowed money with interest at fixed intervals. It is like a loan: the issuer is the borrower (debtor), the holder is the lender (creditor), and the coupon is the interest. Bonds provide the borrower with external funds to finance long-term investments, or, in the case of government bonds, to finance current expenditure. Investing in bonds consider safer than stocks, but still it has some level of risks due to fluctuation of interest rate, inflation risks, rating downgrades, and Liquidity risks.

3. Stocks

Put your money in stock market is considered as a risky move. However, the higher the risks the larger the profits. Unless you have blue chips shares on your hand, enjoy the interests every financial season, you won't be able to avoid any of the ups and downs in share market. Smart people do analysis before invest their money on certain companies, and ordinary people just follow what they heard from "intellectual" "professional" or read from the paper.

Ignorance is the taboo of investment.

What is Investment?

Investment is an important part in budgeting, a step to create a better future for you and your family. It refers to the concept of deferred consumption, which involves purchasing an asset, giving a loan or keeping funds in a bank account with the aim of generating future returns.

An investment involves the choice by an individual or an organization, after some analysis or thought, to place or lend money in instrument or asset, such as Cash Investments, Bonds, Stocks or Equities, Mutual Funds, Commodities, Real Estate and Financial Derivatives.

However, there is no profit making guaranteed in the process of investment. Investment comes with the risk of the loss of the principal sum. The investment that has not been thoroughly analyzed can be highly risky with respect to the investment owner because the possibility of losing money is not within the owner's control.