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What to Invest in?

What to Invest in

 

 

Finding a reputable review about what to invest in, local or worldwide can be a difficult process, especially finding a complete list from a trustworthy reputable source.

 

 

 

Here is our list of what to invest in:

 

Below is an in-depth review regarding what to invest in to help you make an informed decision before trading

 

 

What is an investment and why should you care?

When you start investing, you purchase something and expect the value thereof to bring you profits in the future. There are a lot of people who have a fear of the markets resulting in most people putting most of their money into either cheque or savings accounts, thinking that they can prepare for retirement this way.

 

However, the truth is, banks do not like to give their money away and this can be clearly seen through the interest rates charged on cheque and savings accounts, apart from numerous other fees.

 

When depositing money in a bank, it turns around and invests those funds at around 7% or more annually. After the bank collects their profit from that, they provide the client with a small shaving. The only way to combat the bank advantage is to take matters into your own hands and invest your money yourself.

 

Why should you invest?

Saving money will not guarantee wealth. Banks keep your money safe, but with inflation, money loses its value and purchasing power yearly. So, the money that you save in your bank account, will be worth a little less tomorrow.

When investing, the money will eventually earn more money, if you keep ahead of the rate of inflation. Over the long-term, investing allows for assets to grow over the rate of inflation and past savings build on themselves, instead of declining in value as the years go by, making it easier to save for long-term goals such as retirement.

 

When should you start investing?

Investment is something that needs to be done as soon as possible, or as soon as you have a solid financial base in place. It may require that you eliminate your debt as soon as possible so that you can put more money towards your investment.

It is also imperative to have an emergency fund in place and ensure that you have a sound goal towards which you can work.

 

First – pay off high-interest debt

Should you have debt that has high-interest rates, you should view this as your investment until you can eliminate this debt. Every bit of money towards principal earns you an instant return by eliminating any future interest costs.

Should you still have high-interest debt such as credit cards or personal loans, it is advisable to hold off on investing. It has been proven that your money works harder for you by eliminating annoying interest expenses than it will in the financial market.

This is a result of paying off debt balances, which could save you a substantial percentage on future interest expense. As soon as you relieve yourself of such debt, start investing immediately.

 

Second – Ensure that you have an emergency fund

To ensure that you have reduced the risk of pulling money away from your investment before it has matured, build up an emergency fund to protect yourself from the unforeseen circumstances that can prevent itself.

To start investing and be successful, it is necessary to set your investment up and remain invested. Should you fail to do this, you will limit your time horizon and end up forcing yourself to withdraw your money at the wrong time.

Do not plan your investment accounts as a regular source of cash, save up adequate money to cater for any unexpected expenses.

 

Third – There is nothing wrong with starting small

A lot of people may think that they cannot start investing as it involves large sums of capital. This results in people giving up years of compound growth while waiting until they feel rich enough to invest.

No matter how small, anyone can start getting their money working for them as soon as possible.

 

How to start investing

 

Get started as soon as possible

Not everyone can afford to start investing when they are young but starting as soon as possible is the next best thing. You do not need large sums of capital to get started, small beginnings are still a step towards growing your wealth.

 

Decide how much you want to invest

How much you should invest will depend on the goal that you have in mind and the time that you have in which to reach it. One of the most common goals for retirement investment. The general rule of thumb is to invest 10% to 15% of your income every year for retirement.

For investment goals, it is imperative to consider the investment time horizon and the amount that you will need at the end of it, then work backward to break the amount down into monthly or weekly investment amounts.

 

Open an investment account

For those who do not already have a retirement plan or an investment account, there is the option of opening one either with an online broker or with a bank.

For those who invest for any goal other than retirement, a retirement account will not work as it is designed for that purpose and will have restrictions on when and how money can be withdrawn. Should you want to use it for that purpose, you will need to look at a taxable brokerage account that allows for withdrawals at any time.

 

Understand the investment options that you have

What you invest in, remains your choice. It is imperative to explore all options and to understand each before making an investment decision. Each investment instrument carries its own risk and rewards, which must be explored and understood.

Some of the most common investment options include:

  • Stocks
  • Bonds
  • Mutual Funds
  • Exchange-Traded Funds (ETFs)
  • Certificates of Deposit (CDs)
  • Retirement Plans
  • Options
  • Annuities
  • Cryptocurrencies
  • Commodities
  • Real Estate

 

Choose an investment strategy – and keep to it

The investment strategy that you choose will depend on the goals that you are saving towards, how much money is needed to reach these goals, and the time horizon that they have.

Should your saving goal span over 20 years, like retirement, all the money that you can put towards investment can be in stocks. However, picking individual stocks may be tricky and time-consuming and for this reason, most people invest through low-cost mutual funds, index funds, or ETFs.

Should you be saving for a short-term goal and you need money within five years, or so, the risk associated with stocks will mean that you are in a much better position to keep your money safe in an online savings account, cash management account, or a low-risk investment portfolio.

 

Most Common Investment Options

 

Stocks

Stocks is one of the most well-known and simplest of investments. When buying a stock, you are buying ownership shares in a company that is publically traded on a stock exchange. There are thousands of large companies which are publicly traded on stock exchanges around the work, which means that you can own a share in any of them.

When buying a stock, you are doing so hoping that the price will increase so that you can sell the stock for a profit. The risk, however, is that the price of the stock may decrease, in which case you will suffer a loss.

Stocks can be bought and sold either through an online broker or through most large banks that offer investment accounts for trading stocks on local and international stock markets.

When considering the option of investing in stocks, consider the following

  • Thoroughly research the stocks you are interested in
  • Decide on the type of trade that suits you
  • Know the cost involved with trading stocks
  • Understand how trading stocks will affect your tax bill

 

Pros and Cons

✔️PROS ❌CONS
Opportunity to build substantial wealth Returns are not always guaranteed
You do not need to be a financial guru to get started It takes time
There is a wide variety of stocks to suit each investor The stock market is volatile
You can start with small capital You can lose everything if you do not know what you are doing
Quick access to money You will lose some money, even when you know what you are doing
You can stay ahead of inflation

 

Bonds

When buying a bond, you are lending money to an entity, either a business or a government entity. Companies issue corporate bonds whereas local governments will issue municipal bonds while the United States Treasury issues treasury bonds.

After the bond has matured, or after you have held it for a predetermined time, you will earn back the principal that you have spent on the bond along with a determined rate of interest.

The rate return for a bond is much lower than that of stocks, however, bonds present a lower risk than stocks but are not completely void of risks. The company which issued the bond could go out of business or the government could default. The only relatively safe investment is that of treasury bonds.

 

Pros and Cons

✔️PROS ❌CONS
Bondholders rank higher as creditors than shareholders Less portfolio diversification
Bond coupon payments are structured Corporate bonds do not always provide capital growth
Corporate bond pricing is typically stable It can be difficult to sell corporate bonds
Corporate bonds have better returns than other bonds Secondary markets may have fewer buyers
Some corporate bonds can be converted into stocks Corporate bonds can become less profitable as a result of interest rates

 

Mutual Funds

A mutual fund involves the money of many investors is pooled together and invested broadly in several companies. Mutual funds can either be actively or passively managed.

Mutual funds which are actively managed have a fund manager who selects companies and other instruments in which to pool the money of investors. Fund managers work to beat the markets by choosing investments that will increase in value.

Passively managed mutual funds merely track a major stock market index such as the Dow Jones Industrial Average, Johannesburg Stock Exchange, or the S&P 500. There are mutual funds that only invest in stocks while others specialize in bonds and others in a combination of the two.

Mutual funds have the same risks associated with individual stocks and bonds, depending on what they are invested in. The risks may be less because there is inherent diversification of the portfolio.

 

Pros and Cons

✔️PROS ❌CONS
Advanced portfolio management Expense ratios and sales charges are high
Potential for reinvestment of dividends Abuse of management
Risk reduction due to diversification Tax inefficiencies
Convenience and fair pricing Poor trade execution

 

Exchange-Traded Funds

Exchange-traded funds, more commonly referred to as ETFs, are like mutual bonds as they also represent a collection of investments that track a market index. However, unlike mutual funds, which are purchased through a fund company, ETFs can be bought and sold on the stock markets.

The prices of ETFs can fluctuate during the day whereas the value of mutual funds is the net value of the investor’s investments.

ETFs are one of the best ways for new investors to get started as they are more diversified than individual stocks. Investors can also further reduce their risks by choosing an ETF that tracks a broad index.

 

Pros and Cons

✔️PROS ❌CONS
They do not have a minimum requirement They may lead to higher trading costs
They promote diversification of the portfolio They can be volatile
They are tax-efficient They may present higher risks
They are more liquid than other investments

 

Cryptocurrencies

Cryptocurrencies have become more popular as a vessel for investment as they have gained more acceptance. Bitcoin is one of the most famous cryptocurrencies even though there are hundreds of others.

Cryptocurrencies are digital currencies that do not have backing from the government. They present a great deal of risk due to it being a highly unregulated field. Cryptocurrencies can either be bought or sold on cryptocurrency exchange platforms or through brokers who offer them.

They are a risky investment and may present substantial price fluctuations.

 

Pros and Cons

✔️PROS ❌CONS
Lower transaction fees Can be used for illegal transactions
Hedge against inflation No security in case of loss
Instant and 24-hour access Limited availability of Bitcoin
Self-governed and well as managed The adverse impact of mining on the environment
Secure and private No refunds or cancellations
Ease in currency exchange Challenges to market fluctuation
Decentralized nature

 

Commodities

Commodities are physical products that can be purchased such as wheat, barley, gold, energy products such as oil, and more.

Commodity investments run the risk that the price of the product purchased will drop. Commodities are susceptible to circumstances and occurrences such as political actions, weather, and other factors.

 

Pros and Cons

✔️PROS ❌CONS
Exposure to different opportunities for growth High volatility
Benefit of diversification No income generation
Protection against inflation

 

Real Estate

Investment in real estate is another popular way to grow wealth. By adding real estate investments to your portfolio, you can further diversify it and help to protect your wealth from volatility present in the different markets.

The following types of real estate are available for investment:

  • Rental properties
  • Real Estate Investment Trusts (REITs)
  • Real Estate Investment Groups
  • Home rentals, and more

 

Pros and Cons

✔️PROS ❌CONS
Passive income More tedious than buying stocks
Advantages with tax Expensive as well as illiquid
Hedge against inflation Transaction costs are higher than other investments
Ability to make use of leverage Appreciation cannot be guaranteed

 

 

Author Details

Louis Schoeman

Louis Schoeman

Featured Forex and Stocks writer

Table of Contents

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