Learning about investment

Press, 19 August 1982, Page 23

Learning about investment

This financial review is addressed primarily to shareholders (actual or potential). However, the investor should be aware not only of the different kinds of shares and the different rights that attach to them but also of alternative forms of investment

The purpose of investment is the provision of income in future years. Therefore a distinction has to be made between the investment and saving for a purpose or an emergency.

Savings should be kept in a form that makes them readily convertible into cash. The first objective should be safety of capital — any interest earned is just a bonus. Not that the size of the bonus is completely unimportant, but it depends on the speed with which the savings can be turned into cash. The faster you can get your money back, the lower' the rate of interest. Investors, as distinct from savers, are concerned with the size of the income on their investment. But this is not determined by the immediate annual return — it must be assessed over a longish period ahead. What matters is the total of all returns for the duration of the investment — the income stream.

In many cases the income stream is accompanied by growth of capital, especially important in times of high inflation.

The greatest rewards, and naturally the greatest losses, come from investments that contain a large element of skill or risk. The broad areas of investment are: assets, commodities including futures trading, property, the money markets, the longer-term loan markets, and shareholdings.

Investing in assets has become more popular because of high rates of inflation. Here the aim is capital appreciation rather than income. If the investor acts as a collector, this would depend on the degree of skill as well as the rate of inflation. Often there is reliance on a scarcity.; element. Antiques, stamps, veteran cars, and Persian carpets are obvious examples of this type.