Personal Money Tips

Many people who invest do not know financial terms. Often, when I meet people to discuss about investments, I get asked this question, “How much is the rate of return?” Fair question isn’t it. Depending on the type of investment vehicle, I say between 6% or 8% or whatever the figure is. And I always wait to see what further questions come up. Surprisingly, most of the time, the next question that usually comes up is either the time horizon or the risks involved etc. Which although are fair questions, almost nobody asks if the returns are net or gross returns!! Or in other words, returns on what??

This tells me that the person I’m with, doesn’t know even basic financial terms. I hate dealing with people like these, because I have to spend time to correct them and to teach them the basics. I really think, they should not invest till they know some of the basics.

So in case you do not know, here is a brief lesson.

For example, let’s say you invest $1,000 and assuming that there are no charges of any kind, then, if the expected return is 9%, then at the end of 1 year, you are supposed to get $90. But many investment vehicles carries charges like brokerage, sales, stamping and service charge. So if a service charge of say $100 is incurred, a less than honest person can say, the expected return is 10% and that 10% in on the $900, which gives you $90!! If you did not ask, then, 10% is can be a correct answer.

Depending on which country you are in, there may not be laws to protect you against such unscrupulous people quoting you figures. The best thing though is to educate yourself on what these figures mean, otherwise, nobody can protect you from your ignorance.