In the briefest of terms, investment is simply putting your money to work for you. Many of us grow up believing that going to college and then getting a job is the only way to earn an income. This cannot be true because there is a limit to how much we can work. If we do not have an income backup for when we need to stop working at some point in life, we will spend our retirement in misery. There is only so much that savings and pensions can cover for the common man. This is where investments come in. Today they have become less of just an extra thing to do and more of a necessity because investments are the only way we can retire and still maintain our status and standard of living.
There are many different ways of investing our money, each with its own pros and cons and its own level of risk and return. Often the higher the chances are of potential returns, the higher the risk. Investing is, however, not similar to gambling, such that it is not based entirely on uncertainty or hoping lady luck is on your side. A real investor does not simply throw his money at any random investment. It is only after proper analysis and calculation of estimated profits that he arrives at a decision.
Listed below are some of the different types of investments that have a high chance of making you the quick bucks.
1) PRECIOUS OBJECTS:
Gold is one of the most common sources of investment and can be categorised as an ‘ownership investment’, investments that are some of the most volatile and profitable class of investment. Gold is a commodity and these are investments that do not require payment of interests or dividends. They also increase and decrease in value, which both a good thing and a bad thing. For one, it can result in a huge capital gain but protection against a massive price drop is simply based on scarcity and fear. Furthermore, commodities, like a house, also face the risk of physical depreciation and require proper upkeep and maintenance. Nevertheless, gold can be a profitable type of investment.
2) REAL ESTATE:
Another good source of investment is real estate, which includes all the houses, apartments and dwellings that you rent out, repair or resell. Real estate is a tax favoured investment with good income coming in from rental income, depreciation write-offs and capital gains.
The house you own, however, does not come under the category of real estate because it fulfils a basic need and also because it does not bring in the kind of income letting out property to others, does.
A ‘bond’ is an umbrella term for any kind of debt investment. When you purchase a bond, you loan an amount of money to a company or the government with a fixed rate of interest (called a coupon) and they pay you back this money along with interest, over a period of time. The biggest advantage of investing in bonds is the safety factor attached to it. Purchasing bonds from a stable source ensure that your investment is virtually guaranteed or risk-free. However, this lack of risk also reduces the rate of returns such that bonds might get you only a 3% return on your money over time. Apart from this flaw, however, bonds are a safe and popular source of investment.
Stocks are another type of investment that can get you high returns. When we purchase the shares of a company, we practically own a small part of that company. Thus, if the company makes a profit, we may earn a small portion of it known as a dividend. While bonds are a steady source of income, stock values fluctuate and are volatile in nature. However, if prices and value shoot up, there is potential for high returns and capital gains. There is, of course, a price for this potential because just as easily as these prices can shoot up, there is also the risk that they might go down, hence leaving you with very little or no returns.
5) MUTUAL FUNDS:
A mutual fund is a collection of both bonds and stocks. When you buy a mutual fund, you basically pool in your resources with other investors and these funds are operated for you by expert money managers that make the buying decisions and attempt to get you the most returns. The biggest advantages of mutual funds are that one, you can invest without requiring the time or experience needed in choosing investments. Further, since we are spreading our saving over a varied range of shares and other investments, our money is thus diversified and all our eggs aren’t in the same basket. Mutual funds also have a significant drawback which is, while we aren’t guaranteed positive returns, we still have to pay the money manager a percent of our money.
Apart from the five popular sources of investment mentioned above, there are many other types that have the potential to earn you a large amount of returns in the long run, be it peer-to-peer lending, investment in a start-up, insurance schemes, the FOREX Market etc.
Investment simply requires proper knowledge on your part as to which one personally fits you best and has the chance to offer the highest returns with the least possible risk.