Investment for asset growth

As mentioned in Chapter 2 about financial goals, we should allocate income into savings to accumulate assets for ourselves. In particular, the source of savings for possession of a certain type of property right now or in the future is the most important thing since this factor can determine our personal financial situation for many years. Making the right decisions with regard to property investment will help you achieve your and your family’s financial goals.

SO, WHAT IS INVESTMENT?

Investment is the process of using financial, material, labor-related, intellectual, and time- related resources to achieve profits and economic benefits for an individual or a group. This profit will be achieved through buying assets at low prices and selling them at high prices.

What is an asset and what are the common types of assets that we can own to generate profits in an efficient and safe manner?

Assets are items, money, papers that we can determine legal ownership over and have value. There are many ways to classify assets: for example, in terms of the ability to store value, we have “assets” and “liabilities” (e.g., land is an asset since its value will increase over time, while household appliances, motorbikes, and cars are liabilities since their value will decrease over time) and in terms of physical characteristics, we have tangible assets and intangible assets. For example, gold is a tangible asset, while copyright is an intangible asset.

Investment channels

In the scope of personal finance, especially in the Vietnamese market, we should pay attention to the following investment channels to increase asset value:

1

SAVINGS

This is probably the investment channel with the lowest risk but the level of return is equally low. Due to the impact of the Covid19- pandemic, inflation is faster and deposit interest rates at banks are lower. However, this is still a traditional investment channel trusted by many people.

2

GOLD AND FOREIGN CURRENCIES

(MAINLY US DOLLARS)

Besides savings, gold and foreign currencies are also one of the oldest and most reliable investment channels. In case of investing in gold, its risk is low, so the profit is not too great, but this option can give a higher return than savings if the investor has knowledge of the gold market. In return, investors need to pay attention to storage and preservation. However, in the past few years, with the orientation and monetary policy of the Vietnamese government, the gold and US dollar is no longer as effective an investment and storage channel as it used to be.

3

REAL ESTATE

Real estate investment has never been less attractive to investors. The biggest disadvantage of this investment channel is the large initial investment capital required and long investment period. What’s more, to own real estate, buyers also need to be very careful to check the legality through a complicated process. In addition, the influence of fake news and virtual projects is also a factor to be considered before making any decision.

4

(SECURITIES) STOCK

This investment channel does not require a large initial capital investment like real estate, or a place to store something like gold, and its return is much higher than savings. This is considered to be the fastest growing investment channel today. However, investors need specialized knowledge when participating in this investment market and the level of risk is also higher than other forms of investment.

5

(SECURITIES)

CORPORATE BONDS

Corporate bonds are securities with a term of more than one year issued by an enterprise, confirming the obligation to repay the principal, interest, and others (if any) to bond investors. When you buy a bond issued by a business, you become a creditor to that business. Bonds have higher interest rates than bank savings and are less risky than stocks. Corporate bonds are a very attractive product that give investors the option of “putting eggs into different baskets” for asset management. However, at present, there are many types of corporate bonds on the market, in which many enterprises raise capital via high interest bonds with many risks, such as bonds of real estate enterprises.

6

DIGITAL ASSETS

(CRYPTOCURRENCY)

This is considered to be a bubble because of its rapid changes from day to day, and its unpredictable level of risk. As for the cryptocurrency channel (crypto), investors can enjoy an unimaginable amount of money in a short time, high liquidity, and flexibility, but it is definitely not for the inexperienced investor, because the margin of value fluctuation of this type of asset is unlimited and investors can be cleared out if they do not have enough knowledge and understanding.

Things to look for when selecting an asset for your portfolio

The best way to limit risk is to diversify your investment tools and portfolios and take a long- term view when planning investment strategies. In addition, understanding and judging your own factors, such as good or bad tolerance to risks, stability of the job that generates your main income, your age and health, and inherited financial situation will help you find the right type of assets to invest in and create opportunities for you to increase your assets effectively, meeting your financial goals without putting too much financial pressure on your life.

So, when selecting an asset for your portfolio, what are the unique characteristics of each type of asset that you need to KNOW - UNDERSTAND - USE? Here are the important characteristics that you should pay attention to when selecting types of assets.

1 — RATE OF RETURN

Return = (Purchase price – Selling price) – Trade direction (buy/sell) cost

2 — RISK MARGIN AND FREQUENCY

3 — LIQUIDITY

4 — TIME FOR THE INVESTMENT TO BE PROFITABLE

This is the normal time for an asset group to be profitable or reach its expected level of return. For example, real estate normally needs a -3-5 year cycle to optimize profits; securities, depending on investment needs, generate profits in a period of 6 months, 1 year, or 2 years.

5 — PROCEDURES AND TRANSACTION COSTS (INCLUDING PERSONAL INCOME TAX)

6 — CAPITAL STRUCTURE AND PROCEDURES

7 — PROPER BUSINESS CYCLE

This is the heneral economic conditions for the accumulation or ownership of assets. Investment is also understood as the accumulation and increase of assets, and investment of any kind always has certain levels of return and risk. Generally, these two factors will be inversely proportional to each other and assets with high risk will give a greater chance of profitability.