You know you need more than a savings account to create wealth, but knowing where to channel your money can get very confusing. Depending on your appetite for risk, you must decide on the types of investments and which options will serve your needs better. But even before we get to wealth creation, it’s wise to know which investment options are available and their cons and pros.
Types of Investments You Need
Invest in stocks
Buying stocks is like buying a part of a company. To successfully invest in stocks, never commit your money unless you are sure how you will earn profits. Ask yourself, what does the company manufacture? Do they offer services, and what kind? In which country are they found? Visiting the company’s website and reading about them is an easy way to get this information.
Pros:
- Stocks have high returns. Stocks are said to have the highest yield among the other types of investment.
- You earn dividends. Companies distribute a share of their earning to the stakeholders annually. With a growth strategy, it can pay well.
- You can easily diversify your investment by investing in different stocks in different regions and with various risks. This diversifies your risk and income.
- You can quickly liquidate your stocks in case of an emergency.
Cons:
- It’s a high-risk investment, rising and falling sharply in a short time.
- You risk losing your capital if you make a wrong move.
- You must have the knowledge and time to analyze a stock.
Invest in bonds
Governments and corporations are fond of selling bonds when they need to raise funds for projects and repay the owners with interest. According to Money Monarch, a bond is like a loan you give to the government or corporation. Like taking a loan from the bank, you lend the government your money for some time, and they repay it with a fixed interest rate.
Pros:
- The interest is fixed so you know exactly how much you will earn during the period.
- The principal amount invested is returned when the bond matures.
- It’s less risky compared to stocks, and in the case of liquidation, you are paid before stakeholders.
- Bonds are generally more stable than stocks, although they can fluctuate depending on inflation rate and interests.
- They are universally rated, which gives you more security when picking a bond.
Cons:
- You forego an opportunity to earn higher returns.
- You need to invest large sums of money to earn significant profits.
- They are more difficult to liquidate.
Invest in real estate
Real estate investments can be both exciting and lucrative. You can easily use leverage to buy the property where you pay a down payment and the rest over time. You can start earning from the property from the moment you sign the papers. You can become a homeowner, a landlord, flip and sell houses, or invest in REITs.
Pros:
- Real estate tends to increase in value over time without the ups and downs of stocks and bonds.
- You can collect stable passive income from your rental properties.
- When used well, leverage can help you earn more from your properties.
- It’s one of the easiest investment forms to understand.
Cons:
- It’s one of the most expensive forms of investment.
- If prices were to fall significantly, leverage could see you make losses on your property.
- Properties are not easy to sell and need significant time to liquidate. They may not sell fast enough in cases of an emergency.
- You need to invest a lot of money to maintain your property. You must pay taxes, stamp duty, agent commissions, and maintenance fees.
Invest in money market
Money market investment is usually a short-term investment bought in groups. The fund matures in a year. Money markets offer a higher rate than a bank’s savings account. They invest in short-term debts such as purchase agreement, government agency obligations, and bank certificates of deposits.
Pros:
- It is considered one of the safest investment options because they invest in low-risk vehicles.
- You can quickly liquidate your money in case you need it. Usually, you will have your money within a few days.
Cons:
- You lose purchasing power when the interest rate is lower than the inflation rate.
- If the interest rates are low, annual fees can eat up a lot of your profits, making it harder to keep pace with inflation.
- Since it’s the safest form on investment, the returns are also meager.
Getting a 10% interest on your investment is easier said than done, but with a sneak pick on the types of investment and their pros and cons, you are on your way to grow your money.