Why invest at all?
Investing your money is a critical skill we all need to learn. The quicker the better. Money must be invested to build your wealth. If your money sits in your wallet, it has no potential to earn any rate of return. When you do not invest, you will miss several chances to increase your financial position. There is of course a chance you can lose your money from the investment, but that is why you must learn some strategies. You will fail from time to time, but that is how we learn. There are traditional and alternative investment options and its good to know about them.
Here are the reasons you should invest your money.
- Growth – By investing your money in vehicles that give you a return, your money will start to compound over time.
- Retirement – Everyone wants the option to not have to work one day. To not rely on family support to get you through the month. Putting away money throughout your life is necessary to gain this freedom. The better your choices today, the quicker you will reach your goal. What if you don’t have enough when you retire?
- Start a business – A business can be an expensive thing to start. If you need to go into it full time you will need to support yourself while you are earning no money. Savings can come in handy down the line and make the decision to so your passion full time easier. There are some businesses that don’t cost a lot to start!
Traditional Investment Vehicles
Before we get into what alternative investment strategies are, let us see what we mean by traditional. The well-known ones are bonds, cash, real estate, and shares.
As an investor in bonds, you are typically buying debt issued by companies or governments. You get an annual return until the debt is paid off. Due to the fluctuation of interest rates, the bonds become more or less valuable over time. They tend to be lower risk, so they are a good choice when nearing retirement age.
This money is usually put into short-term, low-risk investment vehicles like deposit accounts, money market accounts and high yield bank accounts. It’s always a good idea to have some of your investments in cash when an emergency arises.
Here, the investor buys property to make money. There are several strategies here including buy to let, flipping (When you buy a cheap run-down home, fix it up and sell at a higher price) and REITs. These are normally long-term investments and can be highly leveraged.
Companies often sell shares to the public to raise capital. This capital is used by the company to invest in and grow the company further. When you buy these shares, you are a shareholder and part-owner of the company. Hopefully, over time the value of the shares grows and provide you with dividends.
Alternative Investment Options
These are good investment vehicles, but its only part of the picture. Here are some alternative ways to invest your money.
These include paintings, stamps, wine, cars and much, much more. If you have a passion in an area and learn the value of your passion you have a good chance of making money through appreciation over time.
These tend to trade relatively liquid assets. There are many strategies, but the aim to provide a higher rate of return on investment. The skill required include long-short equity, market neutral, volatility arbitrage and quantitate strategies.
Instead of becoming a public company, some private companies want additional investment. There are a few kinds. Venture capital, growth capital and Buyouts.
These are investments not funded by the banks or traded on the open market. Private debt is leveraged during the growth phases of companies. The extra capital can be used to push to a new level.
This is a modern form of currency that can also be a store of value. Bitcoin was the first and still the most invested in. What makes them appealing is a decentralised model that is not controlled by an entity. The blockchain is spread across many nodes on the network to manage transactions.
Gold and Silver will forever be the original money. It still has many uses today and it maintains its values over time. Many people including me like to invest in coins and bars and keep them locked in storage. It can be seen as a type of hedge or insurance against the markets.
As you can see from this article there are many types of investments. Plenty more that have not even been mentioned here. Everyone is unique and has their own skills and risk profile. So, take your time to always learn about new types of investments. Make your own choices. You will inevitably make mistakes, but the more you learn and the more you try, the better results you will get.
A great source of knowledge on investing and terms is Investopedia.com. Visit their site to find out more.
I am not a financial planner or advisor. This blog is not advice on how you should invest your money. Consult your financial advisor or accountant before making any financial decisions.
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