We all start investing to make our future easy. Rather than spending something now we invest it and take more benefit in future. Investment is a very important skill that everybody should learn.
All people learn money-making skills at least once in their lifetime, but only a few people learn how to make money with money. If you are one of them, you can’t be more after reading this blog.
So before dive into the 5 best investments, first determine how much risk you can take and how much return you want. Typically risk and return are interconnected to each other such as high risk-high return and low risk-low return.
5 best investments to start with
- Mutual fund
- Exchange-traded fund
- Real estate
Let’s look at each one by one.
Stocks are just a share of a company. After buying a share of the company you’ll become a partial owner of that company.
There are two ways to earn money in stock: 1) price appreciation and 2) dividends.
Do your research about the company before investing in any company. If you fail at this step either you’ll lose all of your money or you’ll make more money only if you invested in the right company.
If you don’t want to analyze a company the next one is for you.
A mutual fund is a portfolio that takes money from investors and invests in a bunch of assets. You don’t need to worry about analysis because a mutual fund is managed by highly educated investors who are experts in their field.
Like stocks in mutual funds, you earn money in two ways; price appreciation and dividends.
It’s benefits folks who don’t have enough money to diversify investment by investing with little money in the mutual fund.
ETF is the same as a mutual fund but with some differences, the most important is as the name suggest its trade on open exchange while mutual fund buy and redeem by company.
Placing a trade for ETF is just simple as trading stocks. You place a buy and sell order with your broker that’s it.
First of all, you need lots of money to invest in real estate. Investing in real estate has benefits like you can borrow up to 80 to 90 percent of money through a mortgage loan. Leveraging other money increases your return on investment.
e.g. suppose you bought the property at 10 lakh, your amounts were 2 lakh, and the rest of the money you borrowed. I bought property price increase 20% in 3 years, you’ll earn 100% return on your investment.
Also, you can earn money by renting a property.
Unlike the above 4 investments, bonds are lending investments. Bonds carry low risk and a fixed rate of return.
They are issued by the government, corporate and municipals. Their risk is based on the creditworthiness of the company.
bond’s names change as their maturities. Such as bills for 1 year or less, notes for 1 to 5 years, and bonds for 5 years or more. Some bond maturities will go up to 50 years or more. Mostly it’s issued by blue-chip companies.
If you don’t want to take any risk so the bond is the best investment for you. Check bond rating before investing to check their creditworthiness.
4 things to look at before investing your money
Risk: Make sure that you decide what is your risk tolerance is low, medium, or high. Invest based on your risk tolerance.
Goal: Why do you want to invest? Is it for college fees for your children or building wealth? Is it for buying a car or for retirement?
Time: decide how much time you want to invest money. Get an idea of your goals. Such as 2 to 3 years for college fees or if it’s for building wealth so just buy the best company bond or stock and hold until it gets compounded over your investing period.
Emergency fund: Keep at least 4 to 6 months of emergency fund in your bank account thereby you don’t have to sell your investment when you need money.
There are also other things to look for but this is the most important you should look for before investing.
Now you have a basic understanding of these 5 best investments that is stock, mutual fund, ETF(exchange-traded fund), bonds, and real estate. And also 4 things that look at before investing.
Start with a small amount, gradually increase your amount and simultaneously learn more about investing. You can follow this blog to learn more about investing.