Decided to invest but do not know how to choose the best financial investment? The first step before applying is to assess three basic points: what is profitability , risk and liquidity ?
Profitability is the speed that the investment yields over a period of time. Risk is the probability of losing money and staying with less money than at the beginning of the application.
Profitability is proportional to the risk ie the two are equally high or low. Stock market shares, for example, are high-risk investments, but they generate the highest returns in the short term.
If you want to make lots of money, you have to be willing to take chances too. However, we must compare the risk and profitability of two actions, since there are cases that both yield equally, but one is more risky than the other.
What about liquidity?
The third item to consider when comparing investments is liquidity . Basically, liquidity measures how fast it is possible to redeem what has been invested without losing money.
Investing is buying financial assets. Therefore, liquidity is the facility to sell this asset.
To measure liquidity, just look at the maturity of the application, the monthly or annual income. There are since investments that last for years up to those who, from a month, it is possible to withdraw money with minimal profit (or at least no loss).
In addition, there are also applications with daily or high liquidity . In this circumstance, it is possible to sell the asset at any time without loss. This is the case for some types of CBD and Treasury Direct.
So if the profitability and risk of two applications are very similar, it is worth checking which one has the best liquidity before applying.