The sad truth is that most investors lose money in the stock markets. This is true for times when the market is declining, but this is also true to the times when the markets are on the rise (!)

The main cause of this phenomenon is that people do not comprehend the associated risk with investments, as well as they think that they could time the market (enter when the markets are low and pull back when they are on the highest peaks).

We would like to share with you some of the concepts of investing your hard earned money in a safer way. One that can yield significant positive results. For that we will need to understand the concept of safe investment.

A safe investment can be defined as an investment that yields good returns in a relatively low risk. Almost everyone invests money to secure themselves financially through investments such as real estate property, stocks and bonds.

Before you invest your money, you must understand thoroughly the intricacies of making an investment. Here are the three main factors that determine the difference between a safe and an un-safe investment:

Diversified portfolio: A diversified portfolio is at lesser risk than an undiversified one, because your investments are spread out. So, even if one market is not doing well, your other investment may still make you money. A diversified investment portfolio works by acting as a shock absorber when the market falls. You must not keep all your eggs in one basket if you want to make a safe investment.

Risk: The amount of risk you take while making an investment is dubbed as your risk appetite. It is said that higher the risk, greater are your chances of getting a higher return.

Time span: This refers to the duration of time for which you make an investment. The safety of your investment is dependent upon several variables such as fluctuation of the market, liabilities and more. You must keep in mind your personal needs for making the investment. You can have a short, medium or long-term investment depending on the above-mentioned factors.

Most investors use below given formula to calculate how to make a safe investment:

100 – Age of the investor

For instance, if the age of the investor is 40, he should invest 60% (100-40) of his total investment amount in equities and the rest 40% in government securities.

All investment options carry certain inherent risk factors. Thus, a study of all investment options is crucial to make a safe investment.

Financial tools

• Deposits: Deposits are a safe investment option, but they offer very small returns. Deposits include government bonds and fixed deposits.
• Mutual funds: In a mutual fund, professional people manage your money. The risk is low as your investment is diversified.
• Bonds: Buying a bond is similar to lending money to an organization. You earn interest on that amount.
• Equities: An equity is a long-term safe investment option that offers considerably higher returns than other safe investment options.

Non- financial tools

• Gold: When the stock markets go down, the price of gold goes up.
• Real Estate: The real estate market is a profitable, but unpredictable investment option.

You can also consult an analyst or a wealth manager to help you make a safe investment. Thus, weighing all the pros and cons of investing in specific sector, make a wise choice of safe investment.