Importance Of Investment Diversification

[Jerome]

"It is best not to put all of one's eggs into one basket!" This is most likely a statement that you may have heard many times throughout your life and when it comes to investing, this statement is a reality. Diversifying one's investments is the main factor in making a success when it comes to investing. All of the people who have made great returns from their monies have been seen to develop investment portfolios that operate in different market sectors and we advise that you should do the same too!

Developing a varied investment portfolio might include purchasing various shares and stocks that come from companies that operate in different business sectors. Methods used to achieve the desired objective may consist of buying government bonds, putting funds in money market accounts or maybe even into property i.e. buy to lets, houses of multiple occupancy [HMOs] and also the standard buying and renting out homes. The key is to invest in different market sectors.

Over time all of the data shows that those who savvy investors who take the time to develop investment portfolios that are well diversified on average experience more stable & consistent returns on their investments this is when compared to those investors who happen to put their monies in one investment vehicle. By investing in those companies that operate in different market sectors [industrial, retail, consumer, business to business etc, etc] will mean that your risk factor is lower too.

For example if you have invested all of your money in one company and that company's shares goes down, you will lose some, a lot or all worst case all of your funds. Looking at this from another perspective if you happen to have invested in say shares from ten different companies and nine are doing well while one plunges averages say that you will still make some money or your losses will be minimized..

A good investment diversification portfolio will include a number of fundamentals e.g. they will include stocks & shares, bonds, property and of course cash!! It may take time to develop a fully diversified investment portfolio. Depending on how much you have to invest at the outset you may have to start small say only investing in cash and then go onto invest in maybe property over times.

This methodology may prove to be fine - however if you can split the investments that you make at the start - it will be a fact that your risk of losing your money will be much lower and as time passes you will see increasingly more attractive returns from your monies.

The finance experts also say that you should spread your investment monies evenly among your chosen investments targets. Put another way - if you happen to start with an investment fund of £100000 & invest £25000 in stocks and shares, £25000 in property, £25000 in bonds & then decide to invest the other £25000 in a savings account that pays a decent amount of interest.

This is the foundation to building a long term diversified investment portfolio and we see property to be one of the most tried to tested methods for delivering outstanding returns on ones investment funds.

[Nate]

Three steps are involved in the evaluation of an investment:

• Estimation of cash flows
• Estimation of the required rate of return (the cast of capital)
• Application of a decision rule for decision rule for making the choice

Investment decision rule

The investment decision rules may be referred to as capital budgeting techniques, or investment criteria. A sound appraisal technique should be used to measure the economic worth of an investment project. The essential property of a sound technique is that is should maximize the shareholders wealth. The following other characteristics should also be possessed by a sound investment evaluation criterion:

• It should consider all cash flows to determine the true profitability of then project.
• It should provide for an objective and unambiguous way of separate good projects from bad projects.
• It should help ranking of projects according to their true profitability.
• It should recognize the fact that bigger cash flows are preferable to smaller ones and early cash flows are preferable to later ones.
• It should help to choose among mutually exclusive projects that project which maximizes the shareholders wealth.
• It should be a criterion which is applicable to any conceivable investment project independent of others.

These conditions will be clarified as we discuss the features of various investment criteria in the following posts.

Investment Appraisal Criteria

A number of investment appraisal criteria or capital budgeting techniques are in use of practice. They may be grouped in the following two categories:

1. Discounted cash flow criteria
• Net present value
• Internal rate of return
• Profitability index (PI)

2. Not discounted cash flow criteria
• Payback period
• Accounting rate of return
• Discounted payback period

Discounted payback is a variation of the payback method. It involves discounted method, but it is not a true measure of investment profitability. We will show in our following posts the net present value criterion is the most valid technique of evaluating an investment project. It is consistent with the objective of maximizing the shareholders wealth.

[Kate]

In the 'City of Nawabs' Lucknow, it is not only the historical buildings and tempting delicacies that make its top news. Of late, it has gained popularity as a residential hub and has a flourishing realty market. A number of reputed builders including Parsvnath and Omaxe are competing to launch Realty Property for Sale in Lucknow. Its rapidly developing infrastructure and connectivity features are the two among many other reasons why this market is gaining extreme popularity.

In addition to a set of modern amenities, affordability is also a reason why homes are so coveted in the city. Let us talk about a few important localities across Lucknow where you must invest in order to earn handsome returns:

Gomti Nagar and Gomti Nagar Extension

This is probably the fastest growth corridor of the city. It showcases a variegated mix of residential and commercial properties when being easily connected to all important parts of the city. This was also one of the first areas to attract the attention of realty developers as large parcels of land lay undeveloped in spite of being close to the Central Business District (CBD) of the city. Nearly all of Lucknow's shopping malls and branded stores are situated along this belt. Gomtinagar also houses the headquarters of some of the most prestigious companies like NTPC, LDA, TCS, Hindustan Times and the Passport Office. Quality educational centers, specialty hospitals and world class entertainment facilities further add to its social framework.

Kanpur Road and Faizabad Road

These two belts are also counted among the most sought-after affordable housing hubs of the city. Property under 30 Lakhs in Lucknow can be availed in abundance along these belts. An IT corridor has been planned along the Kanpur Road belt which will boost commercial development in the area. On the other hand, Faizabad Road is known for its retail establishments like Toyota and Nissan. These two locales are very affordable as the varies between Rs 2,500 to 3,000 per sq ft.

Jankipuram and Jankipuram Extension

This belt is still in the initial stages of development so it is rising as another center of affordable living. Though a full-fledged social infrastructure is not in place, the locality is slowly developing. It is an extension of the Aliganj-Nirala Nagar belt and therefore enjoys good connectivity with rest of the city. IIM Road is also nearby which is witnessing good development as well.

Apart from these, Vibhuti Khand, Hardoi Road, Rajajipuram and Raebareli Road also see great real estate development. The main factors contributing towards Lucknow's realty augmentation are its strategic location surrounded by high-potential micro-markets and the upcoming metro connectivity. However, polluting of the Gomti River is a matter of concern that the authorities must look into.