"Where should I invest?"You probably have this question in mind when you are thinking about saving your money for future profit or use.
A lot of people think that investment is similar to saving. They are almost the same in a sense but somewhat different. An investment is basically a careful way to use your money now so you can enjoy profitable and beneficial results in the future. Any way that enables you to save up money and then generate it for future use is now considered as an investment.
And there are different types of investments, of course none of them is perfectly designed for everyone. You need to know the best money investments for your personal needs, which one really bings decent benefits to you.
Investment and Its Various Types
So, what are the major types of investments? You probably have heard about stock investment – that’s number one. And then there are bonds investment and cash equivalent. Whether or not you want to invest in any of these types, it is up to you. You can also invest in all three indirectly and directly through mutual funds. I will now explain these three types of investments briefly.
1. Stocks
- Accessibility: High
- Feasibility: Stock-investment is very accessible to anyone with internet access and a brokerage account.
- Minimum Investment: Can start with as little as $1 using fractional shares with platforms like Robinhood, Fidelity, or Schwab.
- Potential ROI: Historically, the average annual return is about 7%-10% after inflation.
- Risk: Moderate to high; stock prices can be volatile, but long-term trends show growth.
- Liquidity: High; stocks can be bought and sold on the market at any time during trading hours.
Once you buy the stocks, you become the shareholder. Moreover, you still have to decide whether to buy the common stock or the preferred one. Shareholders of the common stock have ownership percentage and also voting rights. They also get dividends. Shareholders of preferred stock, on the other hand, don’t have any voting right and they get dividends within the predetermined amounts and specific intervals.
2. Bonds
People tend to mistake stocks and bonds – thinking that they are the same. Whereas stock investment can happen for a long time, bond investment is quite short with a limited time range. In bond investment, you are basically lending your money to the one issuing the bond – which can be a government entity or company.
- Accessibility: High
- Feasibility: Bonds are available through brokerage accounts or directly from governments and corporations.
- Minimum Investment: Typically $100 or more, depending on the bond.
- Potential ROI: Generally lower than stocks, with returns ranging from 1%-5% annually, depending on the bond type and issuer.
- Risk: Low to moderate; government bonds are safer than corporate bonds.
- Liquidity: Moderate; can be sold before maturity, but prices fluctuate.
Bonds are set within a limited period of time. During that period, interest (whose rate will be set by the issuer) will be given to the bondholder, and this is called the coupon rate. This rate can be variable or fixed. During the maturity date (the end of the period), the issuer needs to repay the original amount of the loan.
- Some investors say that bonds are more profitable than stocks because of the steady income flow.
- Others say that stocks are more profitable for its long term return and benefits. It basically depends on your investment needs and styles.
- People who are risk-takers tend to prefer short-term profitability, but without a good knowledge they would risk losing. While those who are risk-averse tend to seek for a long term plan where they can receive dividends and bonus pays periodically.
3. Real Estate
- Accessibility: Medium
- Feasibility: Requires more capital and management than stocks or bonds but offers tangible assets.
- Minimum Investment: Varies widely; direct property purchases may require tens of thousands of dollars, while REITs (Real Estate Investment Trusts) can start with a few hundred dollars.
- Potential ROI: 8%-12% annually through rental income and property appreciation.
- Risk: Moderate; depends on the property market and location.
- Liquidity: Low for direct real estate; moderate for REITs.
4. Mutual Funds
- Accessibility: High
- Feasibility: Managed funds that pool money from investors to buy diversified assets.
- Minimum Investment: Typically $500-$3,000 to start, but some funds have lower minimums.
- Potential ROI: Similar to the overall market; historically around 5%-8% annually.
- Risk: Moderate; depends on the fund's asset mix.
- Liquidity: High; mutual funds can be bought and sold at the end of each trading day.
5. Exchange-Traded Funds (ETFs)
- Accessibility: High
- Feasibility: Similar to stocks but provides diversification like mutual funds.
- Minimum Investment: No minimum; buy a share or even fractional shares.
- Potential ROI: Similar to the market index they track; typically 5%-10% annually.
- Risk: Moderate; less risky than individual stocks but depends on the ETF's focus.
- Liquidity: High; ETFs can be traded like stocks throughout the day.
6. Cryptocurrency
- Accessibility: High
- Feasibility: Digital currencies available on various platforms.
- Minimum Investment: Can start with as little as $10.
- Potential ROI: Highly volatile; potential for high returns but with significant risk.
- Risk: High; market is speculative and can be unpredictable.
- Liquidity: High; cryptocurrencies can be traded 24/7.
7. Savings Accounts
- Accessibility: Very high
- Feasibility: Requires minimal effort and is available at all banks.
- Minimum Investment: None to low, usually $25-$100 to open an account.
- Potential ROI: Low; interest rates typically range from 0.01% to 2% annually.
- Risk: Very low; insured by the government up to a certain amount.
- Liquidity: Very high; funds can be accessed anytime.
8. Certificates of Deposit (CDs)
- Accessibility: High
- Feasibility: Offered by banks and credit unions.
- Minimum Investment: Typically $500-$1,000.
- Potential ROI: Low to moderate; higher than savings accounts, usually 1%-3% annually.
- Risk: Very low; principal is insured.
- Liquidity: Low; funds are locked until maturity, with penalties for early withdrawal.
9. Robo-Advisors
- Accessibility: High
- Feasibility: Robo-advisors are automated platforms like Betterment or Wealthfront manage investments for you.
- Minimum Investment: Can start with as little as $500 or even less.
- Potential ROI: Similar to diversified portfolios, generally 5%-8% annually.
- Risk: Moderate; based on the chosen investment strategy.
- Liquidity: High; funds can be accessed easily, though it may take a few days to liquidate investments.
10. Peer-to-Peer Lending
- Accessibility: Medium
- Feasibility: Platforms like LendingClub allow you to lend directly to individuals or businesses.
- Minimum Investment: Typically $25 per loan.
- Potential ROI: Can range from 5%-12% annually, depending on borrower risk.
- Risk: High; borrowers may default on loans.
- Liquidity: Low; loans have fixed terms, and secondary markets are limited.
11. Commodities
- Accessibility: Medium
- Feasibility: Investing in physical goods like gold, oil, or agricultural products.
- Minimum Investment: Varies; can be several hundred dollars for futures contracts or commodity ETFs.
- Potential ROI: Varies widely based on market conditions.
- Risk: High; prices can be volatile due to supply and demand factors.
- Liquidity: Moderate; some commodities are more easily traded than others.
12. Index Funds
- Accessibility: High
- Feasibility: Mutual funds or ETFs that track a market index.
- Minimum Investment: Typically $1,000 or lower through online brokers.
- Potential ROI: Historically around 5%-10% annually.
- Risk: Moderate; reflects overall market risk.
- Liquidity: High; can be traded like stocks and mutual funds.
13. Real Estate Crowdfunding
- Accessibility: Medium
- Feasibility: Platforms like Fundrise or RealtyMogul pool money for real estate projects.
- Minimum Investment: Usually $500-$1,000.
- Potential ROI: 8%-12% annually, similar to traditional real estate.
- Risk: Moderate; depends on property performance and market trends.
- Liquidity: Low; funds are typically tied up for several years.
14. Options and Futures
- Accessibility: Medium
- Feasibility: Financial derivatives available through brokerage accounts.
- Minimum Investment: Varies; typically requires significant capital and understanding.
- Potential ROI: High potential for returns but also high risk.
- Risk: Very high; complex instruments that can lead to significant losses.
- Liquidity: High; can be traded on exchanges.
15. Collectibles and Art
- Accessibility: Low
- Feasibility: Investing in rare items like art, coins, or vintage cars.
- Minimum Investment: Varies widely; can be a few hundred to millions of dollars.
- Potential ROI: Varies greatly; can be high for rare and sought-after items.
- Risk: High; market demand is unpredictable and requires expertise.
- Liquidity: Low; selling collectibles can take time.
Best Money Investments for Your Personal Needs
Here are the steps to find out which ones are the best money investments.
#1 Set The Goals
Firstly determine your goals. They should be (a) why you want to invest (what for) and (b) how much return you want to receive. For example, in order to take an early retirement, and you want $50,000 to set up your own antique business.
#2 How Long To Invest It For
The term of your investment varies depending on your goals and the investment type. If you were planning an early retirement like the example above, you would choose a long term investment plan such as 25 years.
#3 Consider More Than One Plans
It's good to diversify by spreading your investment across different plan in order to minimize risks. For example if you buy company shares, choose companies from a few different industries, e.g. construction, pharmaceutical, catering.
Some options that include a tax-deferred way (like annuity or IRA) are also an option. Don’t be too fixated on the profits because such a way of saving money is also prone to risks, such as interest rate risk, repayment risk, and also credit risk. But with these various types of investment, you can have the option to choose the one fitting your needs.
Rebuilding After a Financial Setback
Accepting the Reality
Facing a significant financial loss can be both emotionally and mentally taxing. The first step in recovery is acknowledging the situation. Denial only prolongs the healing process. Give yourself the time and space to process the disappointment, but don’t let it dominate your mindset.
Evaluate and Learn
Understanding what led to the loss can provide clarity. Analyze the circumstances, decisions, and factors that contributed to the setback. By identifying these elements, you can learn from them, ensuring that you make informed decisions in the future. Remember, every setback can offer a lesson, and extracting that lesson can be instrumental in your financial recovery.
Realign Financial Priorities
After a significant loss, it's time to reassess your financial goals. Perhaps previously you were aiming for rapid wealth accumulation; now might be the time to prioritize stability and gradual growth. Adjusting your priorities can provide a clearer direction for the next steps.
Cut Non-Essential Expenses
Streamline your expenditures by differentiating between needs and wants. This isn't a permanent state of austerity but a temporary measure to stabilize your financial situation. Once you’ve established a firmer financial footing, you can reconsider your spending habits and make adjustments as needed.
Re-establish an Emergency Fund
Before delving back into investments, it’s wise to build up a safety net. Start by setting aside a small percentage of your income until you have enough to cover at least three to six months of essential expenses. An emergency fund acts as a buffer, ensuring that unexpected events don't push you further into financial distress.
Seek Professional Advice
After a significant loss, working with a financial advisor or counselor can be beneficial. These professionals can provide perspective, offer guidance on rebuilding, and help structure a new investment strategy. Their expertise might introduce you to options and strategies you hadn't previously considered.
Re-enter with Caution
When you feel ready to re-enter the investment arena, do so with caution. Begin with smaller, less risky investments to rebuild your portfolio. With time and experience, you can gradually reintroduce more significant investments. This phased approach not only minimizes potential risks but also helps regain confidence in investment decisions.
Stay Updated
The world of finance and investment is ever-evolving. To make informed decisions, it’s beneficial to stay updated with current market trends, economic news, and emerging investment avenues. Educate yourself through books, courses, seminars, and reputable financial news sources.
Connect with Supportive Networks
Interacting with peers who have faced similar setbacks can provide emotional and practical support. Sharing experiences, discussing recovery strategies, and learning from others' mistakes and successes can be invaluable. There are many online forums, local groups, and workshops where you can connect with like-minded people.
Stay Resilient and Optimistic
While the financial loss can be disheartening, resilience and optimism are your allies in the recovery process. Believing in your ability to rebuild and grow can make the journey less daunting. Setbacks, though challenging, can be the catalysts for growth and transformation.
Looking Ahead
Experiencing a financial setback, especially a significant one, can be challenging. However, with a proactive approach, informed decisions, and unwavering resilience, recovery is achievable. By learning from the past and looking ahead with renewed vigor, you can chart a path to financial stability and success.
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