Balancing your savings between different investments

Some of the ways  an investment can make money is by lending to someone who pays interest; Buy shares and thus become part owner of a company; or buy something like gold or real estate that is expected to increase in value. 

INVESTING IN STOCKS 

When you buy shares in a company, your gains and losses can be large depending on how the company performs. By buying shares, you become a co-owner of a company. Of course, the proportion is too small for you to have a say in  the management of the company, butIf the company pays  part of its profits as a dividend, then you, the co-owner, get your share. As the company becomes more valuable, its share price increases and so does its wealth. Like any business owner, you can choose to sell some or all  of your shares or keep them for future profits. Conversely, you could lose money if the stock's value goes down. If business goes very badly, you could lose a large part of your investment.

INVESTING IN DEBT FUNDS

A very different way of making a profit is to lend someone money. Note that unlike stocks, we didn't say "lend money to a company." not just to a company, but even to a government or  other entity.When we say lending, it includes activities that you may not normally think of as a loan.Lending just means giving someone money and getting interest income in return.For example, when you make a deposit in a bank (it could be a fixed deposit or a savings account), you are lending money to the bank.

However, the scope of gains is sharply limited compared to investing in shares.When you lend, your gains are limited to the interest rate that the business has agreed to pay you.No matter how successful this business may become, you will not get more. Of course, the risks are also limited. With most types of deposits, the risk of not earning your interest is fairly limited. Therefore, the rewards are predictable and so are the risks.With the third type of investment, the risks and rewards are the easiest to understand. You buy something when the price goes up, great, and when it goes down  you lose money. When choosing an investment from the three, the complexity is on a different scale. Variable income is more complex than the others. There are literally hundreds of companies whose shares can be bought on the stock market and making the right decisions is not easy.Fortunately, there are ways to make the right decision with ease.