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The 5 investment pillars

A good investor limits his exposure to risk by diversifying in investments. It is like placing you money on a table with 5 legs. If in case a leg gets damaged, the table won't fall because it stands on the remaining four legs. You can even diversify further from each main investment pillar. Its like having pegs on each of the 5 legs making your investment portfolio truly dependable to whether any financial storm. You need not invest in all 5 immediately, work through each of them slowly using a determined savings plan (10% or more if you are comfortable)and before you know it, you have an enviable investment house resting on the 5 pillars.

1. Paper investments
This would include investments in mutual funds, unit investment trust funds, stocks, bonds, money market funds, treasury bills, certificates of deposit and more. These are called paper investments because well, you have a piece of paper or document as proof of your investment. These are offered by banks, asset management companies, and brokerage houses. These are liquid investments, meaning they can be converted to cash easily. Remember that these are as just as good as the institutions that offer them, so make sure you have done your research and it would be best to deal with well known, established companies.

2. Real estate
A must for any investor is to have his own house. Strive for this early since procrastination will not place a roof over your head. As soon as you have saved enough for downpayment, get a mortgage to secure your first home as real estate prices go up every year. In real estate, remember location, location, location. if you already own your home, then invest in rental properties. It could be a single family house, an apartment building, a warehouse, a strip mall or a piece of land. Location is still the foremost consideration. A neighbor of ours rents out a 2x1 meter space for P10000 a month to a barbecue vendor. Now that's a great rental property.

3. Business venture
Being an entrepreneur is also a must for any investor. Invest in a business that you are passionate about. Start small and do not quit from your day job. Do this later when you have an established business and earn profits regularly. You can sell cakes on a made to order basis; offer consultancy for a fee if you have specialized knowledge or skill; join a multi-level marketing company that sells everyday products; buy and sell farm products, cars or houses. There are so many that you can get into, some do not even require capital, just pure determination. I know a lady who buys clothes in bulk and sells them on installment to her friends and neighbors. She earns a 30% return on her capital in 4 months, not bad right?

4. Valuables
This would include jewelry like gold, silver, diamond and others; antique, paintings, coins, luxury bags and watches and many more that increases in value over time. Not all expensive stuff are considered valuables. If they depreciate over time, then they are not considered investments. Take cars, designer clothes and your flat screen TV.

5. Insurance and Pre-need plans
Educational plans, pension plans and the like offers a guaranteed return on your money at some time in the future. These are important parts of your investment strategy. Remember to deal only with established institutions. A good strategy would be to buy the least expensive policy from 3 different institutions for your pension plan. If you will be retiring 30 years from now, there is a strong chance that at least one of the three institutions would still exist.

Always do your research BEFORE placing your money in any of these 5 investment pillars. Trust your instincts, if you are not comfortable with a particular company or a particular investment type, then don't invest in it. There is no price for sleepless nights. If you are not yet ready to invest, then keep your money in a regular deposit account until you find a good area to invest in. Do not rush. After all, cash is king.

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