There are four fundamental characteristics of interest for an investor who will allow choosing the most appropriate instrument to meet their investment needs, these are: risk, profitability, liquidity and term.
It is the probability exists that the expected return on an investment is not carried out, but on the contrary, instead of profit and loss are obtained. However, the existence of risk is usually associated with the possibility of higher returns. For example, securities involve greater risk tend to have a higher rate as a reward for the investor accepts the risk. Therefore it can be concluded that there is a direct proportionality between the risk and return of an investment.
There are then on the one hand, instruments with large potential risk and substantial gains or other safe instruments, with little or no risk, but which offer lower profits. The first belong to the category of equities and the seconds to the fixed-income.
Profitability means the gain that is capable of providing an investment. Strictly is the relationship between the income from an investment and the amount thereof. That is, an investment is profitable when it provides profit or income suitable to the interests of the investor.
The terms: performance, discount, utility, dividend, interest and income are closely related to the concept of profitability.
It is the ease with which the investment made in an instrument can be converted into money. This feature is critical for the investor who has the expectation to channel investment towards another mechanism that gives most useful when the opportunity arises.
The liquidity, coupled with the risk and return characteristics of each instrument, give the investor the information to help them to decide which one is best suited to achieve their financial goals.
It refers to the time when the instruments are placed with an expectation of recovery or maturity of short, medium and long term. It will depend on the requirements of the investor liquidity to determine to which term considered appropriate to maintain the investment, because if a financial emergency arises and investment is the medium to long term, then you won’t have resources to solve the problem and this if that can be very dangerous for the financial operation of the company.
Once you have clear the four fundamentals that you have to consider to invest, you can establish a diversified investment portfolio, which also help to keep a certain proportion of funds in securities that are coming due and can be converted quickly and easily into cash and another ratio that is found in the medium or long term where performance is the most important thing for the economic entity.