"LYDS"

Probably the most important part of investing in anything is to understand the “LYDS” of the investment. This research should be done before you sink any money into anything. What are the LYDS, you ask?

Liquidity – How easy is it to access your money and get out of the investment?
Yield – What is the interest rate/dividend amount per month/year/term?
Duration – What are the minimum & maximum maturation time periods?
Seed – How much does it cost to start this investment / will it require more later?

The major purpose of ListQuest is to explore and answer these research questions for my own quest to acquire as many streams of income as I can. I’ll be documenting my findings here to hopefully help you too. Each investment explanation will include a LYDS break down of each of these points as I discover them to clarify and classify their general characteristics.

Without understanding the liquidity of an investment before investing, you risk locking up the money you could possibly end up needing/wanting to access earlier than expected. Liquidating an investment early is NOT a good investing practice. For most investments this could result in early withdrawal penalties, which might even defeat the whole purpose of having that investment in the first place. The last thing you want is for an investment – which is a tool designed to augment your overall holdings – to end up costing you anything. Money needed within a few days, months or even a few years should never be tied up in investments that are meant to mature over a 5, 10, or 30 year period. There are many types of investment vehicles that have short or even NO maturation periods, though admittedly, these typically have lower yields.

Long term investing is most effective when you use money you DON’T depend on for anything else, such as bills, debts, or daily necessities.

Often, highly liquid investments produce lower yields. This is true for investments with shorter life spans too. This is generally because lenders or creators of investment vehicles need time in order to re-invest that invested money. The duration of an investment is one of it’s most important features. The longer they have access to it, and the more certain they are that those monies ware available to them, the more confidently they can re-invest it, and the more they can make with it. It’s as though someone were saying, “Look, I’ll pay you to let me invest with your money. The longer you let me invest with it, the more I’ll pay you.” Therefore, it is in the best interest of banks, lenders, governments and other investment creators to motivate their investors to keep their money invested for as long as possible. The incentive is typically a higher yield, and the bi-produced requirement is less liquidity.

Having your money “locked up” isn’t necessarily a bad thing, either. One of the benefits of finding investments that are not easily liquidated is that you tend to leave them alone (out of necessity), giving them a chance to grow for you. Sometimes these liquid-proof restrictions can serve as all the discipline we need to keep our money invested and working for us.

Yield is mostly determined by how long the investment is active, and by the risk of that investment. Speculative and more volatile investments often need higher rates of return in order to attract high-risk investors. Similarly, but in the opposite way, long-term investments usually need to have higher yields to attract qualified conservative investors.

And finally, the amount with which you begin investing does matter. I wish I had a dollar for every time I heard some investing guru say, it doesn’t matter how much you invest, as long as you invest something. While I don’t think this is actually false, I do believe that it DOES matter how much seed money you invest with originally. For example, let’s take the interest rate (or yield) of 7.9%, which, as of today, is the rate at which spot gold had appreciated over the past 12 months. Let’s say that one year ago, as a timid investor you had invested $100 into gold bullion. Today (taxes and fees notwithstanding) your initial seed investment would be worth $107.90. You would have earned just $7.90. Hardly exciting. Now, let’s say that you were a much more confident (aka, well-informed) investor, and you had invested $10,000 into gold bullion just one year ago. Your initial investment would now be worth $10,790! You would have earned $790 in the same amount of time!

Now, not everyone has 10 G’s lying around waiting to be invested. However, my point is that when you only invest a tiny bit, you’ll only get a tiny return regardless of the interest rate. Even at a 100% rate of return, that first example would only be augmented by $100, while the second would be worth $10,000 more! The trick here is to become confident in your investment through research, and then really GO for it.