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Sunday, June 7, 2009

It is easy to be cheated (9) - A better way to gamble

I consider investing to be similar to a gamble. The investor buys a financial product and hopes that the price will go up. If the price goes up, the investor makes a profit. If it comes down, the investor makes a loss. The investor has to take the invested asset does not fail and become valueless.
In recent times, it seems that even money kept in fixed deposit in a bank, which pays a low rate of interest, has the risk of default of the bank. Some people think that it is safer to keep the money under the bed!
To make the matter worse, financial institutions have created products that are risky and do not disclose the actual nature of the risk and do not pay a fair rate of return to the investor for the risk!
To avoid risk, it is better to invest in the following:
a) bonds that are issued by the AAA rated government. They offer a low yield, but is fair and safe.
b) A low cost, diversified fund invested in many bonds or shares, such as an indexed fund or exchange traded fund. Invest for the long term, to average out the good and bad years.
For investors who like the excitement of speculating on the price movement of shares or other assets, be honest and recognise that you are actually gambling. If you wish to gamble, it is better to go to a casino. The odds are fairer to the gambler, and the terms of the gamble are controlled by the authorities. You know the odds, and can decide on which side of the gamble to take!
Singapore is opening two world class casinos. When you gamble, make sure that you gamble an amount that you can afford to lose. Enjoy the gamble and good luck
Tan Kin Lian

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