December 30, 2010

A Housewife's Investing Basic

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So, after all the shopping and vacation and all those huge expenses of paying your children's tuition fee, you still got some cash money left? Lucky you! What should you do with those idle money? Let the money work for you to gain more money. INVEST IT! in this posting, I'd like to describe several options of investment to make that idle money work for you.

Investment is where you put your idle money to a certain account which can not be withdrawn as freely as a saving account. So, don't expect to see your principal money - that is the money you put - in the near future. But expect to receive the profit generated from investing your money. Therefore, keep in mind, that you might need some current cash account for an emergency, I call it emergency fund. As we don't live in our home country, I put a certain limit of petty cash for emergency fund that is enough to cover airline tickets for all of us, for instance, if we needed to get out of the country immediately. In investment also apply a law, that the higher the risk of an investment, the higher is the return.



OK! These are the options that we have, and starting the list from the lower risk investment is:

1. Time Deposit (T/D): is when you commit to put your money into an account for a definite period of time, and in that period of time, you can't withdraw it except with a certain penalty fee. The common periods are 1, 3, 6 and 12 months and it can be extended (roll-over).  You can choose to receive profit (interest in conventional bank) every month in your current account or choose to add the profit to the principal when the time is due (capitalize). You don't need to have lots of extra fund to have a T/D account in Indonesia. You can start from IDR 500,000 in some banks. However in Saudi, the minimum amount are quite high. Some banks require around SAR 25,000-50,000 to open T/D account. Investing in Islamic T/D is much more profitable than in conventional one since the profit rate is not fixed upfront. The profit you'll get will depend on the profit generated by your money. So, it is fairer also to the investor, rather than in conventional T/D, where if the interest rate is fixed at i.e. 6%, you'll always get that number, although the bank has probably generated a profit which can give you more than a 6%-interest. That's an approximate bank rate in Indonesia. In Saudi, the profit rate is only around 1% :p.

2. Buying GOLD: gold is a steady investment, always. Buy coins or small bars which contain more gold. You don't have to buy an ounce at once. Buy it little by little. For instance 5 grams or 10 grams at first. Then go up from there. Why not jewelries? Jewelries or ornaments are also nice if you also wear them, but they are more costly than coins or bars because the craftsmanship cost is added to the price. And as all fashion trend, it can go out of trend. So the coin n bars are relatively cheaper and have higher return. However, for loan collateral purpose, bank usually accept jewelry rather than coins or bars. Yet, you can sell coin n bars easier than jewelries. Take care about the pricing as well. Currently, the oil price is surging, and therefore the gold price is a little bit lower than a month ago. More about gold investment, please refer to World Gold Council website.

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3. Property (land and/or house): when you already had your own house or your residual savings (which already include mortgage payment) allow you to buy a new house or land, try to invest in property. If you buy a second house (either landed or apartment) you could rent it out to pay for the mortgage and maintenance, aiming for profit, of course. If you have land you could either use it for farming/gardening or just leave it, since it doesn't cost you much to maintain. The profit comes from the gain in sale of property and net rent income.

4. Mutual Funds: buying a mutual funds account has a high risk, but of course it will give you high return. Mutual fund itself is a collection of stocks and/or bonds, so rather than you buy one stock of a company you buy a basket of varied stocks n bonds. This investment allows you to gain in at least 2 different ways, from yearly dividend of stocks or coupon of bonds and from the increase price of any stocks in the mutual funds when you sell it. If you're just a beginner, find creditable investment house/banks. The asset manager usually will give you a financial report of the mutual funds they bought for you. The price usually included a management fee for the fund manager. (Note: Islamic bonds are called sukuk and the coupon payment is based on the contract. More about Islamic Finance to be discussed in another posting)

Please note that although buying property might require more capital (money) than buying mutual funds, the earlier is mostly considered as having the lower risk. Though probably you can't sell it in speedy manner when you need money, you still have the fixed asset in your hand.

5. Invest in your own idea! If you have hobby or idea that can generate money, invest in it. For instance, if you like photography, invest in photography school and the tools, then probably make your own photo studio for ad agency or event organizers. Or if you like to cook, and your cooking is already a hit among your friends's parties, you could offer catering service or just selling some foodstuffs. And many more...You know what you capable of. Sometimes it doesn't even require a large amount of money to start. I myself make use of the low price sale here in Jeddah for some branded stuffs like children clothing, watches, bags and sell it when I have vacation in Jakarta. The profit is just enough to pay some of our holiday expenses there. Willing to be my customers too? ;). Of course since this kind of investment is the highest risk, you can gain much profit, but you can also loose more than the principal money you already invest. However a success as an entrepreneur gives you more than just money but also satisfaction.

In the end, it's up to you which kind of investment you want to choose. But it always wise NOT to put all your eggs in one basket. You need to diversify, so the risk will be spread among all those investment vehicles. And most importantly, do intensive research before investing your money in a high risk vehicle. It will probably take up some of your time, but it's better safe than sorry.

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