The world of investment is very complicated as we look at multiple aspects of investing. The evergreen question that creates maximum confusion is – should we invest now? Or should we wait for the market correction? Can we make target returns in such a high market? Should we buy more to lower the average price? Can we invest in such a volatile market and earn reasonable returns? Similar kinds of questions will pop up to most minds thereby delaying their investment decision. Investors tend to lose money in both scenarios a) if they don’t invest, they miss the market beta and inflation impact b) if they invest in wrong product, they might earn less income or might suffer income and capital loss or both (in some cases). 

No matter how much experience you have in managing money, you can still go wrong in multiple ways. Sticking to one style of investing or having a biased view on a particular sector/stock or not reviewing and rebalancing the portfolio at regular intervals are some of the key reasons that can lead to serious underperformance of the portfolio. Even if you are using the same method that was very successful in the past, that can become absolute as the market evolves. So, what should we do? What are the key factors that one should look at while investing?

Investing money is a crucial financial decision that can greatly impact one’s financial health and future. Ideally, investors should focus on three key factors of investing – Risk, Liquidity and Return.

• The first factor is risk. How likely you are going to get the returns that you expect over the investment tenure. Different types of investments carry different levels of risk, with higher risk investments typically offering the potential for higher returns. It is important to assess your risk tolerance and choose investments that align with your financial goals and comfort level. Diversifying your portfolio can help largely mitigate risk.
• The second factor is liquidity. Liquidity refers to how easily and quickly you can convert your investment into cash without impacting its value. Investments like stocks and bonds are usually considered liquid because they can be easily bought or sold on the market. However, some investments, such as real estate or certain types of securities, may have lower liquidity and may take longer to convert into cash. It is important to consider your liquidity needs and ensure that you have access to cash when needed for emergencies or other expenses.
• The third factor is return. Return refers to the profit or gain you can make from your investment. Higher risk investments typically offer the potential for higher returns, while lower risk investments generally offer lower returns. It is important to strike a balance between risk and return that aligns with your financial goals and investment timeline. Consider factors such as the historical performance of the investment, fund track record, full cycle demonstrated capabilities, the current market conditions, and any potential outlook before making investment decisions.

In an ideal scenario, investors will aim for low risk, high return, and high liquidity products. However, getting all three together is difficult. It will sacrifice any one of these areas. Let’s understand this in detail: