Investment Options: A Comprehensive Guide to Where to Invest Wisely
Investment tools refer to various instruments, products, special-purpose vehicles, or methods through which one invests money. Decades ago individual investors had not much options to invest in due to a lack of technology and awareness.
However, in the 21st century, one is lucky to have more than enough options to invest their hard-earned money in. One has to note that each instrument does come with its associated risks which they have to know and plan their investment accordingly.
Following are some options or investment instruments
Table of Contents
Stocks
A stock, also known as equity is a security that represents proportionate ownership of a company. Every unit an investor holds is called a share and the holder or an investor is called a Shareholder. Investors who buy shares of stock become partial owners of the company and can benefit from its profits and potential growth of the firm. Stock investing offers the potential for capital appreciation which can beat inflation and give real returns to the investor
Bonds
The term Bond means a debt instrument or a loan taken by an organization from the public. Bonds can be issued by private companies, public companies, Governments, and Municipalities to raise capital from investors. In a Bond, the borrower agrees to pay a fixed amount as interest to its bond subscriber and return the principal investment amount at the time of bond maturity.
Saving Account
While a savings account is not considered a traditional investment tool, one does have to consider this is the safest option of all which generates some returns. The returns are much lower than Inflation however we have to consider the liquidity it provides to its saving deposit holder. We do recommend holding at least 2 months of expenses in a savings account to counter any money requirement.
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Term Deposits
Term deposits are one of the very age-old and time-tested investment instruments. Fixed deposits are our fore-father’s favorite investment instrument. It has the lowest risk in all the asset classes however it also yields the lowest returns, the interest rates offered by banks are 4-5 %.. This hardly beats inflation and one should only park his emergency fund in Fixed deposits due to the nature of safety.
Mutual Funds
Mutual Funds are an instrument where many investors invest their money and a pool is created. This pool of money or fund is managed by an asset management company which then invests in a diversified portfolio that consists of Stocks, Bonds, or other asset classes described in the mutual fund’s Scheme Information Document(SID) or Mutual fund’s objective. The main benefit of investing in mutual funds is that the investor has to not do any research on his own and a well-trained mutual fund portfolio manager will do it for the investor in exchange for a small marginal fess called an expense ratio which is generally 0.01 to 1% of the investment. The mutual fund also offers great options as it diversifies the investment into various asset classes which reduces the risk of any losses.
Commodities/ Gold / Silver
Commodities include but are not restricted to physical assets like Gold, Silver, diamonds, etc. Indians majority prefer to invest in Gold and gold equivalent assets are they hold a value of their own, also it appreciate value, and can also be used in the physical form of jewelry and can be shown as a status symbol. As per official records worldwide, India is the largest importer of gold, primarily catering to the demand of the jewelry industry.
Exchange-Traded Funds (ETFs):
ETFs are similar to mutual funds but are traded on stock exchanges like individual stocks. An investor can buy and sell this security in real time on exchange with no wait time as Mutual funds. EFTs do replicate various indexes such as NIFTY, SENSEX, NASDAQ, SNP 500, etc, so investment amounts are diversified accordingly into underline stocks. They do offer the same diversification, low expense ratios, and intraday trading flexibility.
Real Estate Investments
Real estate investments involve purchasing properties, real estate can be classified as residential property, or commercial property, to generate rental income and potential property value appreciation. This asset class fascinates its investors with good cash flows and is considered a passive income. The downside of such an investment is that one needs to invest a large amount of money upfront. Real estate has historically beaten inflation by a margin but underperformed stock market investing.
Certificates of Deposit (CDs)
Certificates of Deposits are time deposits offered by banks with fixed interest rates and maturity dates. They’re considered low-risk investments but typically offer lower returns compared to other options. Lower the risk, lover he returns. In Certificates of Deposit is an account that holds a fixed amount of money for a fixed period, such as six months, one year, or five years, and in exchange, the issuing bank pays interest to its subscribers.
Tax saving Funds
In USA, we do have investment options such as 401K Account ith tax saiving advantage. In such funds you will not only save taxes but also enjoy various benefits such as Employer Contributions, professional fund management, laon against fund and many more. Some of the other tax saving funds are 401(k), IRA (Traditional and Roth), Health Savings Account (HSA), Flexible Spending Account (FSA) etc.
Foreign Exchange (Forex)
Foreign Exchange investment is when one converts his national currencies to foreign currency and hopes the value of Foreign currency increases. Historically we Indians prefer to invest in United States Dollars or Euro as it has given good appreciation. However, due to current geopolitical situations where the USD is losing its value, we think one should avoid this asset class and invest in India as India is the center of the developing world.
Cryptocurrencies
Cryptocurrencies are one of the new-age investment instruments one uses to gain exponentially high returns. Cryptocurrencies are digital currencies designed to work as an alternative medium of exchange through a computer network system that is not reliant on any central authority, such as a government or central banks, to uphold or maintain it. The value of Cryptocurrencies is determined by the open market and the demand and supply of the same. Value is also derived by its use cases. One has to note that Cryptocurrencies are very very risky and can lose even 80% of their values in a matter of couple of days. Even though one can earn 100-200% returns in a flash, we recommend to only invest 2% of the portfolio in Cryptocurrencies.
