Capital investment is something that has been on everyone’s mind since forever. Everyone wants to make extra money apart from their regular income. This is when investing their money in something comes to their mind. However, previously, investment for a lot of people meant to keep their money in saving accounts or to simply buy a house and rent it out. Today, in the modern age, people are all about investing their money in something big. To invest in something big you need to make sure that you know each and everything about it. Following are some investment solutions that will help you to make wise decisions about your money.
1. Invest your capital in Mutual funds:
Invest your capital in Mutual funds
While you were looking for some investment solutions, you might have come across Mutual Funds. For people who are completely new to this investment solution, Mutual Fund is usually referred as a pool of investment made by different investors who aim to wither make some extra money or to keep their money safe. The purpose of this pool is to invest in different securities so that the investors can easily diversify their savings without facing a lot of risk. These funds are operated and managed by the money managers. The mutual fund is one of the easiest investment solutions. This is the reason a lot of people prefer to go with it without digging about the pros and cons.
There are a lot of reasons people prefer to choose Mutual funds as their investment solutions. Mutual fund is a professional management of the investor’s money. One of the main reasons people prefer to go for the investment solutions because they do not have enough expertise or time when it comes to managing their portfolio. Mutual fund is a professional management of their money without putting it at a lot of risk. Moreover, the fear of losing their money always overpower the idea of gaining something, which is why people are not a huge fan of putting all eggs in same basket. The mutual fund is an easy way to go for the diversity and risk losing everything. When you are investing in a pool and there are several other investors involved in it, the risk is usually evenly spread out. Mutual funds allow you to invest your heart’s desired money so that the loss is actually minimized.
However, despite being easy to buy and offering diversity to the investors, there are some cons that come with mutual funds. Investing in the mutual funds is usually operated by the managers which mean that you do not get a lot of say in it. This can be a drawback as you do not get to decide a lot about your invested money. Moreover, the biggest red flag that comes with the mutual funds is its cost. The sole reason of the mutual funds is not to make your life easy. All the funds are there to make profit for. When it comes to mutual industry, it is best known for mastering the skills of burying the cost under different layers. They use tact and highly professional language which is beyond the understanding of the layman to hide the high cost of the mutual funds. The costs are extremely complicated and are completely a pain to pay.
2. Invest your capital in Stocks:
Invest your capital in Stocks
Stocks also commonly known assets are one of the types of the investment solutions. They are also the most popular type of investment solutions among investors. Stocks are usually a hit and miss type of thing. Stocks are available in different forms. You can invest in the share of a company that may end up bringing a high profit to you.
Investing in stock is more like an ideal investment for a lot of people. Stocks usually are bought using cash which means there are hardly any hidden charges or sugar coated extra fees leached to them. The buying and selling procedure of the stock is also very easy as compared to any other investment solution. The investor has the option of buying or selling his stock. Whenever investor feels like the price of the stock has increased, he is free to sell them.
Despite having advantages, there are a lot of things that you need to bring in consideration when it comes to buying stocks. There are different types of risk associated with investing in stocks. The biggest risk is that the prices are always fluctuating. There is no obvious pattern when it comes to prices of the stock so the risk of losing your money is always high. People usually end up making bad decision when they see a stock price going down, as they hope it will be high again after sometime. However, when the prices instead of increasing continue to go down, investors realize they have made a poor decision but by then it is way too late.
The lack of control is also a very important that everyone should keep in mind. When you buy stocks of a company, you have no say in the decision or strategy making of the company. The company might make poor decisions that may cause it go in loss which means the price of your stocks will go down eventually. The lack of control can be very frustrating and nerve racking for the investors.
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3. Invest your capital in Gold:
Invest your capital in Gold
One of the oldest investment solutions that have been preferred by the investors is gold. Yes, investors from all around the globe thinks that there is no better way of keeping their money safe than buying gold. Investors invest in different ways when it comes to gold. Some prefer to buy jewels that they can use in their life. In this way, their money is safe with them and they are also bringing it in use. On other hand, there are also some investors who prefer to buy gold in solid form i.e. as gold coins or gold bricks, as in this way they can have the pure form of gold.
There is more than one reason why people prefer to go with gold as compare to other investment solutions. The gold market has the record of staying high for a long period of time. Be it any country of the world, the gold markets touches the peak and continues to stay there for a long period of time which is why people consider it to be the best way of preserving their wealth. Gold is acceptable all over the world. Moreover, there is certainly no different type of gold in different parts of the world which mean you can trade it regardless of your locations. A lot of people use this strategy and trade their gold for different currencies especially when they see their currency going down. You can simply keep the gold with you and sell it whenever you get perfect rates for it.
However, investing in gold is not always as beneficial as you think it is. People usually lack knowledge and invest in gold but sooner or later they realize that investing in gold isn’t bringing much advantage to them. The sole reason behind making any type of investment is to earn some benefit from it. However, buying gold and keeping it with you isn’t going to bring any benefit at all, not unless you decide to sell it. There is no interest or income you are getting out of that gold. Moreover, if you are investing in gold by buying in form of jewels then you might end up paying a lot of commission to the buyer in the name of the making of the jewel. Furthermore, if you check the history of the gold and its prices, you will realize that despite the fact that the prices of gold stays high for a long period of time, there are times when the prices out of nowhere starts dropping which is not at all a good thing for the investor.
4. Invest your capital in Hedge funds:
Invest your capital in Hedge funds
Another investment solution that sounds very appealing to investors all over the world is the hedge funds. The hedge funds are similar to mutual funds in some ways. In mutual funds, the investors pool in their personal money for the sake of investment. However, in the hedge funds, the investors are not any random layman. Most hedge funds only accept amounts from 1 Mio. or much more as a minimum investment and they are regulated in exotic destinations or not regulated at all. The investors are the sophisticated ones like individuals who own significant assets and institutions. The money invested is usually borrowed from different sources. The borrowed money can be invested in different types of securities.
Similar to any other investment solution, there are some advantages and disadvantages that come with investing in the hedge funds. One of the biggest advantages of investing in the hedge funds is that the investors get to use aggressive strategies to get higher returns. The stronger the investors are more aggressive strategies they can use. The aggressive strategies if pull out as planned, can bring in huge return which is something every investor wants. The reason hedge funds is perfect for the large institutes or individuals who own assets is that this type of investment is all about going big. The investors do not hesitate from investing a big amount of money and using their aggressive strategies they can easily get their hands on the huge gains.
The huge investment and bigger gains might sound to be very interesting to you. However, if you pay more attention, you will realize it is not for everyone. Yes, the hedge fund is for the bigger fish. The main idea of the hedge funds is to bring in bigger investors. People who aim to go with the small investment are not welcomed to this type of investment solution. The cost of investing in the hedge funds is very high which is why not everyone can choose this investment solution for his money.
5. Invest your capital in Bonds:
Invest your capital in Bonds
Bonds are one of the most favorite types of investment solutions for the investors till date. Different business as well as government issues certain bounds in order to raise some funds from the investors who buy them. There different types of bonds that an investor can go for. Some bonds offer regular interest to the investors while some promises principal back once the bond is matured. It is completely up-to the investor to decide which type of bond he wants to invest in.
The bonds are the easiest ways of putting your money in some investment. Firstly, they are easily available. The investor do not have to go through a lot of hassle in order to get his hands on his desired bonds, be it corporate one or the one issues by the government of his/her country. Secondly, the bonds can be directly bought from the broker who means that you pay in cash. Buying directly from the broker is the best way of avoiding extra fees or some unwanted hidden charges. If you are going for the corporate bonds then you are signing up for the monthly benefits as per the policy of the corporate. There are some government bonds that work more or less in similar ways; however most of them promise principal back after the bonds are matured. Investing in the bond is widely said to be the best thing for the people who have retired from work and cannot afford in any way to lose their savings. Bonds allow them to keep their money safe. If you are young investor and are looking for some long run benefits, then the maturity bonds can be the best option for you to go with.
The bonds do not have all the positives attached to them. Despite being high on demand, there are few negatives that are also part of the bonds. The prices of the bonds are always fluctuating. The prices usually rise when there is a fall in the rates and vice versa. The corporate bonds are the most fluctuating one. You can never predict when their will be change in the policy of the business that will directly or indirectly affect the bonds issued by them. A lot of people go for the bonds as they plan to reinvest them. However, there are a lot of cases in which the investors do not get the perfect deal for reinvesting their bonds and they have to eventually settle for something less. Moreover, the exchange rate of the bonds is not as good as the investors expect it to be. Probably the worst thing on bonds is that they lose absolute value over time because most of the (government) bonds are traded with negative interest. If you want to invest in a government bond from a high quality issuer you have to accept to lose value, for example if you buy a bond for 100 CHF with a negative interest of 0,2% you get back 99,8 CHF and the inflation of 1% makes the real buying power of your money after one year 98,8 CHF. That means you can be sure that you lose your money if you invest in low risk bonds. If you invest in high risks (or so called junk bonds) you can get 5% or more interest but you have to accept a big risk associated with these bonds from smaller companies. Academic research have found that stocks and dividend payments currently deliver a better return to risk profile then junk bonds.
6. Invest your capital in Real estate:
Invest your capital in Real estate
So you wanted to put your saving to some use and decided to go for investing it. Out of all the investment solutions, buying the real estate seemed to be the wisest option to go with. Investing in real estate is something people have been doing since forever. People usually buy a house or apartment and rent it out so that they can get regular income.
There are a lot of reasons real estate is considered to be one of the best old school investment solutions. Buying a house is a way of securing your money and future. People think for the long term benefits i.e. during their middle age the house will help them financially with the rent and during their old time they can actually live in it. There are a lot of people who buy a house and rent out its basement. This is the cleverest way of earning from your house while you are living in it. Buying real estate brings them the sense of security as the prices of do no fluctuate as compared to other investment solutions. They can sell their property whenever they feel like investing in something bigger. The bigger investors instead of buying a house prefer to buy some commercial property that they can later rent out. The rent of the commercial property is higher as compared to residence real estate.
Buying a property and then renting it out might sound to be extremely easy. However, if you look in the long run, it is not as easy as it seems to be. You bought a house with the idea of renting it. However, did you think about the maintenance of the house? Yes, the maintenance of the house is on the house owner not on people who have rent it. The maintenance cost of the house is very high. At times, you end up paying much more than you are actually earning from that house. Taxation is also one of the important things that you should keep in mind. If you are going for the commercial property, you need to remember that the tax for the commercial property is high as compared to residential property. Moreover, selling real estate is pretty difficult thing to do. Most of the times, it is extremely difficult to find the buyer who is ready to pay your desired amount. At times, you have to hire a real estate agent to help you sell your house. Hiring real estate agent means that you will have to him commission. Further, the prices of real estate is usually intact, however the matter of fact is there is usually no buyer at all.
From a risk point of you buying a house puts a lot of your money into a single point (the place where the house is located) and many factors out of your control. For example if some big factories in the area close down people might move away and it will get harder to rent away your house, special risk like flood or weather risk can destroy your investment, it is possible that you do not get your money ….
Compare the average return of a house of 4-5% with the average stock market return of 7-8% and find that a long term stock market investment is probably the better solution.
7. Our recommendation: Invest your capital in Passive investment portfolio:
Our recommendation: Invest your capital in Passive investment portfolio
They Holy Grail reason behind making any type of investment is to earn profit from it. A lot of investors misunderstand this reason and focuses on short term advantages. However, a wise investor will always keep his focus on the long term advantages. This is the reason that today in modern world, passive investment is known as the best investment solutions. Yes, passive investment focuses not only on short term benefits but also on the long term benefits. Passive investment basically maximizes the returns over long period of time by keeping amount of investing minimum. It aims to avoid all types of extra fees that usually come with other investment solutions. People who are investing in passive investments should know that there are no quick gains in it.
The biggest advantage of investing in the passive investment portfolio is that it has nothing to do with the prices of gold and other commodities in the market. You do not have to wake up to the bad news that the prices of gold went down and now your investment is at risk. Furthermore, you do not have to waste your time trying to evaluating your stocks based on the company reports. There are no hard decisions that you need to make which you will later regret. Moreover, you also do not need to have a lot of funds sitting in your portfolio. You can simply get started with two funds.
One of the many reasons why people prefer to go with passive investment is because there low expense fees and ratios. The passive investments are to simply replicate performance of index that they are actually tracking. The turnover is low which means that there will be lower trading costs as well as the management expenses are also minimal.
Transparency is also a key advantage that anyone can hardly ever ignore. Passive investment lets the investor know what funds are actually holding the entire time. The transparency is the reason that passive investment is considered to be high predictable. The predictability allows the investors to make better decisions which will further lead him to benefits in the long run as long run advantages is what passive investment is all about in the end.
And to be fair, we run a free passive investment blog and we recommend you to make you a free portfolio with us. If you make a free portfolio with us you will be able to see how a portfolio would have behaved over the last years and you get your risk explained.
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