Are you scared of inflation devaluing your money in the bank account? Confused about what can be the best investment option suitable for you? Well, this post can just get you started on your investment journey to create wealth in long term.
Do you think investing your hard-earned money can be risky? I am here to your rescue. Listed below are a few common investment options that you should consider before deciding which best suits your interest. Most of them are the traditional old-school instruments while others are modern and yet to be market-tested in years to come.
1. Stocks:(Average return on S&P 500 - 9.2% per year)
The stock market can be one of the best investment options where your buy and sell shares. If you have a higher-risk appetite you can act as a trader and trade shares on daily basis based on company events and news that may affect a particular share. Be warned that this option is not for every retail investor like you and me as it has been observed that trading with a lack of knowledge and discipline always leads to capital destruction.
On the contrary, being an investor is a safer option that is available. An investor usually picks a good company and holds the given share over a prolonged period and generates huge returns if the company performs well. Since stocks depend upon market volatility, it is categorized as a risky market but as people say, “What’s life without a little risk.”
A bond is a loan to a business or the government(borrower). This has an almost constant capital (rate of Return) because the borrower uses the money for its own funding and must pay interest to the investor that invested the money in them. The question again would be why would you invest in bonds? The answer is simple returns are usually higher than the bank interest rate.
Bonds help minimize the investor's risks in the stock market as they help balance out the blow if the stock market crashes. Depending upon the ratings assigned to the bonds they are considered as investment grades (comparatively safer) or high-yield or junk bonds (risky ones). The value of a bond can change over time, and they are sold for a fixed term of a few years.
3. Mutual Funds:
A mutual Fund is where multiple investors give their money to a company which then invests it in stock markets, bonds, and debt funds. The return they get on such a large sum of money is then divided and returned to the investors as their capital(keeping in mind the amount they each invested) while the company gets to keep a little as their own profit.
This is mostly a non-risky option with an almost fixed capital return depending on company to company. Mutual funds are managed by a fund manager or managers who have a good experience. Sometimes the popularity of the fund manager decides how good a particular fund is. Make sure your long terms goals align with the capital the mutual fund gives back.
4. Fixed Deposits:
This is an option for people who want to grow their finances with the highest level of safety over a long period of time that is suitable for the investor’s needs or demands. An investor decides on the tenure of the Fixed Deposit. The money is then lent out by the bank to people who need loans with a time period shorter than for what the investor lent the money. This way the person who takes the loan returns it to the bank in a short amount of time along with an interest. The bank keeps some interest as its own profit and then adds the balance interest along with the original amount to give to the investor.
5. Real Estate:
Real Estate investing is purchasing residential or commercial properties and either getting a regular rent or then selling the property when its market appreciates. Usually comes with a higher ticket size but the bank loans make it a good investment option. Many real estate investors purchase the property and rent it out. Many a times the rent itself takes care of the monthly repayment towards the bank loan, thus offering a good deal to the buyer.
Investing in Real Estate implies a steady source of income provided that you keep updating the property and maintain it well. This does require extra costs but the high capital makes up for it. Even today many consider investing in real estate to be a safe option than investing their money in equity markets.
The yellow metal has never lost its shine. one can invest in Sovereign gold bond. You may purchase gold in physical form(jewelry, bar, or coin) or can go for the digital form. Gold in jewelry form is not recommended as an investment option as it loses a certain percentage value when you sell it. Gold can also be bought in paper form through gold exchange traded funds (ETFs) or can also opt for soverign gold bond
When the markets start falling people move their investments from stock to gold as it has always been considered to be a safe investment option. Even silver for that matter is considered to be a good investment option as it has given even better returns than gold over the historical period
The form of currency that exists digitally and uses cryptography to secure its transactions. They are not issued by any central authority and therefore render impervious to government influence or manipulation. It is based on blockchain technology and decentralized which means it will not collapse under a single failure. Although it is faster and cheaper money transfers, the price oscillation is highly volatile.
Examples of cryptocurrencies include Bitcoin and Ethereum.
Although crypto has been around for more than a decade now. It is often blamed for not being environment friendly and aiding transactions used for criminal activities. It remains a shady investment tool with not everyone approving its credibility. In spite of all this one cannot deny the fact that it has made people millionaires who believed in it.
8. Non-Fungible Token (NFTs):
An NFT is a digital asset that can also link ownership to real-world items like art, music, videos, etc. It uses the same blockchain technology as cryptocurrencies but is not a currency. Each token has a unique token number and is therefore exceedingly difficult to duplicate or alter. It is a 'one-of-a-kind' token and hence its worth is different from other similar tokens.
You may ask, why people are willing to spend so much on these tokens? Well, it is because an art, music or clip is duplicated and has a lot of copies but here, you have ownership of the original piece.
Returns are all About Timing and Risks Appetite
Do you find it exciting? If you are in search of something exciting you should take your money gambling. Its a game of all or nothing. Investing is not like gambling, it requires a lot of attention, study, and patience.
Depending upon your risk appetite and investment horizon there is always one or many best investment option available for you. Power of compounding kicks in when you stay invested for longer time thus growing your wealth in long run.
Now that I have laid out a few investment options for you, make sure to research them further and accordingly decide which one suits your needs.
Thanking Kyra Lord 'a budding writer' for contributing to this blog post with her research and knowledge.