Now we know that we should invest our money instead of letting it all sit in the bank. We have to explore the rather big world of investments. There is really so many on offer so I am going to give you a breakdown of them and how they work.
Investing in your own business to create a product or service for profit.
You can also invest in other people’s start-ups, partner up or purchase an existing business or buy a franchise.
Peer to Peer Lending
This involves lending to individuals or business through an online platform. There are risks and depending on the platform there can be no guarantee that the borrower will repay the loan.
The yields can be attractive however and you can earn 5-15 % on your investment annually depending on the risk of the loan.
Make sure you do your research on the platform you are investing for the level of trustworthiness as you want to know your money is in safe hands.
The most well-known way of investing is buying stocks. When you purchase stocks you own a part of that business and this can entitle you to a share of its profits in the form of dividends depending on how many shares you have.
Stocks change value every day which can be affected by the economy or financial performance so there is risk involved.
A mutual fund is a collection of investments managed normally by someone experienced in investing with the aim of getting the best return. You pay a fee to them in return for their expertise.
Mutual funds are set up with a specific focus in mind e.g. international stocks, stocks in a specific industry, bonds from governments, stocks and bonds etc.
This is a good option if you’re inexperienced in investing as you don’t have to do the research yourself.
This is a type of mutual fund that mirrors a specific index e.g. the S & P 500. Instead of owning multiple stocks they own and follow the entire or a portion of the market. Due to this, they are passively managed so there isn’t a team of investors constantly analysing it and adjusting the asset allocation in the fund.
Therefore costs are lower so you get to keep more money that you make. They generally outperform actively managed funds and are also highly recommended by Warren Buffet. The master investor himself.
Bonds are a term for any type of debt investment.
When you buy a bond you are loaning money to an entity (e.g. a corporation or the government ) with a fixed interest rate for a certain amount of time.
These are one of the safest types of investments and will be better suited if you’re more of a risk-averse person. Low-risk will also mean less return on your investment in comparison to other securities.
Certificate of Deposit
This is a note issued by a bank in exchange for your money.
They are a type of saving account where you commit to leaving your money for a certain amount of time. If you decide to withdraw before the times is up you will have to pay a penalty.
You’ll get a higher interest rate depending the length of time and how much money you deposit.
Investing in property can generate money for you in two ways. Capital gains which is when the value of the property goes up or through rental income which should be above the mortgage repayment to the bank.
With investing in property you will typically need a lot of capital compared to other investments.
There is market volatility in terms of how the property market is doing but in the right area it can be a very fruitful low-risk investment.
You can also make money by doing up properties that require renovation and selling them on for a profit. Ways to invest with less capital is by investing in a property investment trust or a crowdfunding platform.
Luxury Items and Objects
This is a more unusual investment and are things like wine, artwork, collectables and luxury metals.
They are tangible assets you can invest in and are areas that someone who has a high level of expertise in the field can take advantage of.
There are more details within all these areas to understand before picking the right investment. Make sure you research well where to invest your hard earned cash but I always recommend people to invest it somewhere even if your risk averse because the rates will most likely always be better on what you would earn through your bank which can be next to nothing.