How long do we want to invest for?
How long we invest our money for is called duration. A short-term investor (1 to 3 years), is better to look at a more stable investment product that offers consistent returns. If investing money for the long term (10 years plus), we probably have time to go with the ups and downs of shares and property investing for the promise of better returns.
Do we need to get our money out quickly?
How easily we can turn our investments into cash is called liquidity. For example, a bank savings account is a high-liquidity investment because we can get to our money easily and probably won’t have to pay any penalties for taking it out. Low-liquidity investments include property (because it takes time to sell and may be expensive) and superannuation schemes where our money is locked in until we retire.
What risks are we taking with this investment?
No financial institution or investment is entirely risk-free, but the level of risk can vary greatly. If an investment seems too good to be true, it probably is.
The main risk is that our money may not be there when we need it. Our investments could lose value or wemay not receive all of our money back.
Lower-risk investments like bank deposits are less likely to decrease in value than higher-risk investments like shares. But if we can tolerate higher risk, there may be a better chance of achieving a greater return in the long run.
Some investments like bonds may be given a rating by an independent agency. These ratings are a useful tool in an overall assessment of the investment risks.
