Investing Basics: Six investment solutions for your capital

 

Capital investment is something which everyone has on their mind.  People want to generate extra money apart from their regular income. Therefore, while investing their money they think of this question ‘What are the best investment options?’ writes Harneet Bhari

 

Traditionally, investors think of keeping their money in saving accounts, fixed deposits and buying a house and renting it out as the best investment options. But, this trend is fast changing and people are looking for different investment avenues to generate better returns at lower risk. Following are some of the safest investment options that will help you to make wise decisions about your money.

 

1.   INVEST YOUR CAPITAL IN MUTUAL FUNDS:

 

Mutual Fund is referred as a pool of investment made by different investors who aim to either make some extra money or to keep their money safe. The purpose of a mutual fund is to invest into various asset classes like equity, debt and commodities. It can help diversify the savings for an investor which he would not have got if he wanted to invest a small amount himself. Along, with this investor gets an opportunity to get his money managed from professionals in the business. Mutual Fund is one of the easiest investment solution, you just need to find the top performing mutual fund and start investing with them.

 

ADVANTAGES OF MUTUAL FUNDS:

 

✔   Professional Management:  Mutual funds are managed by fund managers who have the expertise and experience of managing money. This reduces risk for someone who invests directly without proper knowledge

✔   Diversification of Investment: Mutual Fund investments help in diversification of risks. It helps your money being into investment in various stocks which was not possible when you are investing yourself.

 

DISADVANTAGES OF MUTUAL FUNDS:

 

✖   No Access to Portfolio:  Though you get diversification in portfolio and have various options for choosing mutual funds, but you don’t have any say in deciding where your money can be invested. Fund manager will decide on its own, the best possible scenario for the mutual fund

✖    Costs and Fees:  There are charges which are related to mutual funds which reduce your returns generated. There are fees like management charges, entry load, exit load which might be there. Plus, there might be lock in associated with some mutual funds which would mean that you cannot take your money out during a particular time frame.

 

 

2.     INVEST YOUR CAPITAL IN STOCKS:

 

If you think investing in mutual funds, is a costly option and it does not give you control over your investment then, investing directly in stocks can be a good option.

 

ADVANTAGES OF INVESTING IN STOCKS:

 

✔    No Hidden Charges:   Investing in stocks would help you avoid charges and will help provide you control over your stocks.

✔    Easy to Buy & Sell:   The buying and selling procedure of the stock is very easy as compared to any other investment options. 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.

 

DISADVANTAGES OF INVESTING IN STOCKS:

 

✖    Higher Risk:  It involves a lot of risk if you enter the markets directly. It requires time and lot of understanding of financials to make the right decision. One poor decision can cost you to lose even the principal amount. The chance of losing a lot in mutual fund is reduced as you have diversification there.

✖    Lack of Diversification and rebalancing: It becomes very difficult to diversify and rebalancing when you invest directly. Whereas, with mutual funds and asset management firms this won’t be an issue as they always keep track of portfolio and diversify it well.

 

 

3.     INVEST YOUR CAPITAL IN GOLD:

 

Gold has traditionally been considered as an asset which will keep people’s money safe. Investors can invest here to diversify their portfolio, keep their money safe and generate returns. Gold has the habit of doing well when there is uncertainty in the environment.

 

ADVANTAGES OF INVESTING IN GOLD:

 

✔    Price is Less Volatile Compared to Other Assets:   Gold prices have always been less volatile than other assets. Gold over long periods of time has always delivered good returns. It keeps investors’ money safe whenever, there is uncertainty in the markets

✔    Globally Accepted:   Gold is a globally accepted commodity. Be it any part of the world gold can be exchanged for cash.

 

DISADVANTAGES OF INVESTING IN GOLD:

 

✖    Gold does go down:  As with other commodities gold does move down. Though the chances of going lower are less compared to other commodities. If your bond markets are doing well and economy is going very strong, then gold tends to remain stable. As, you might have seen, over the past 5 years it has remained more or less at the same price. Though there have been ups and downs, but a person who invested 5 years ago would have generated almost nothing.

✖    Commissions:  If you purchase gold in the form of bars, jewellery etc then, there are various charges and commissions which are applicable which would reduce the return.

 

 

 

4.     INVEST YOUR CAPITAL IN BONDS:

 

Bonds are one of the most popular investment option among investors. Be it a bond issued by a company or be it a government bonds, they provide investors an option to generate returns at a lesser risk. But Bonds, have their advantages and disadvantages of investing.

 

ADVANTAGES OF INVESTING IN BONDS:

 

✔    Easy to Buy:   Bonds are easy to buy, and investors can do it themselves easily. There are usually no major requirements which need to be fulfilled by an investor before he buys a bond.

✔   No additional costs involved: Bonds can be bought easily with the help of brokers. It helps save cost as well.

✔   Easy to Choose: You can compare the risks involved in different bonds and get their bond yields and other information easily and make a purchase decision.

 

DISADVANTAGES OF INVESTING IN BONDS:

 

✖    Highly Volatile:  Bonds can be highly volatile as their movement depends on lot of economic parameters, currency rates and other factors. Bond swings mean you are prone to lose money if you buy at peak and sell at the bottom.

✖   Low Interest Rate:  Bonds offer low or zero interest rates in most developed nations. In some case interest rates are even negative. This low interest rate effects your portfolio and hurts your chances of building a sizeable capital.

 

 

5.    INVEST YOUR CAPITAL IN REAL ESTATE:

 

Real Estate has acted as a traditional method of investing one’s earnings. Investors invest just for capital appreciation on housing prices and for generating rental income. This dual factor of real estate makes it a popular investing option.

 

ADVANTAGES OF INVESTING IN REAL ESTATE:

 

✔    Shelter and Security for Future:  People consider real estate as an asset with multiple benefits. They can purchase it for considering house as an asset which they can use later, generate rent from the property and can expect returns from real estate

✔    Generates Cash Flow:  As discussed above it proves to be a source of cash flow for investors where an investor can generate cash in the form of rent plus can expect some good appreciation

 

DISADVANTAGES OF INVESTING IN REAL ESTATE

 

✖   High investment Cost:  Real estate costs requires a big investment. It usually becomes difficult to have so much available cash at the same time. You can look to fund it through loan but that would add another interest burden.

✖   Property Taxes:  If interest rates and investment cost was not enough, there are property taxes which need to be paid and add up to the total cost, leading to reduction in what you can generate.

✖   Less Liquidity:  Real Estate is not liquid asset as gold, mutual fund, stocks etc. You would need to put it on sale and wait for the right bid to come through. You don’t know the time when it will come and at what price. If you can need emergency money then, real estate should not be the asset class where you should invest.

✖    Risk Associated with Property:  There is always a financial risk associated with the property. Like other asset classes, real estate properties also fluctuate and if there is a housing crash, you lose all your money.

 

 

6.  INVEST YOUR CAPITAL IN PASSIVE INVESTMENT PORTFOLIO:

 

The “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 invests with a long-term goal in mind. This is the reason that today in modern world, Passive investment is known as the best method of investing. Passive investment focuses not only on short term benefits but also on the long-term benefits. Passive investment maximizes the returns over long period by keeping amount of investing minimum. It aims to avoid all types of extra fees that usually always present with other investment solutions.

 

ADVANTAGES OF PASSIVE INVESTMENT

 

✔    Minimal Risk:   The biggest advantage of investing in the passive investment portfolio is the reduced risk. Passive Investment has nothing to do with gold prices and other commodities in the market. Furthermore, you do not have to spend time trying to evaluate 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.

✔    Low Expenses:  Passive Investment Funds have low expense. The passive investments try to replicate index performance that they are tracking. They have low turnover which means that there will be lower trading costs as well as lower management charges.

✔    Transparency:   Passive investment are transparent, and they let the investor know what funds are held all the time. The transparency increases the predictability of passive funds. 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.

 

 

SAMT AG makes use of scientific models to design the best possible portfolio for investor after assessing their risk profile. You get transparency, independent advice, scientific based investing, lower risk ratio and lower costs all under one roof.