Types of Investments Available

Now that you’ve set
up a budget
and have started saving, it’s time to turn our
attention to investing.

Investing requires more financial
expertise than saving. However, if it is long-term financial
security you are after, you will have to start investing – and
better sooner than later.

In this post, we will focus on the
types of investments available. Major investments include:

  1. Time deposits

A time deposit is a
bank deposit with (i) a higher interest rate than a regular savings
account, and (ii) a clear date of maturity. There are penalties for
early withdrawals but once the account reaches maturity, you can
withdraw funds without any fines. Or you can choose to leave your
funds for another term. The longer you leave your money alone and the
higher the amount of funds, the more interest you earn.

Time deposits are
considered a low-risk, safe form of investment. It’s also easy to
set up and is not complicated to grasp – so much so that time
deposits are considered a beginner’s investment.

There are
disadvantages, however. You can’t touch your funds during the
term’s duration, so make sure you can afford to have your money
locked away for the time being. Also, while a time deposit’s
interest rate may be higher than a regular savings account, the same
interest rate is lower than other types of investments and is in fact
so low that time deposits’ rates often lose out to inflation rates.

  1. Precious Metals

Gold is a classic
investment that remains popular throughout Asia. There are differing
opinions on whether or not gold is still a viable investment. For
your reference, we will include three varying arguments: from
Investopedia,
from CNN
Money
, and from the
Daily Telegraph
.

In general, gold
and precious metals preserve wealth against rising inflation. For a
long time, they have been considered safe investments during
political and economic upheavals.

However, gold
prices are actually very volatile. Also, gold pays its owner no
income, unlike say, bonds or dividend stocks.

  1. Property

Property serves a
similar function to gold: it is seen to preserve wealth against
rising inflation. The value of property generally appreciates
overtime, making property a popular long-term investment.

However, the main
disadvantage of investing in property is glaringly obvious: entry
cost is high. You need a lot of money to buy property. Additionally,
property is not liquid and requires plenty of upkeep.

If you do have the
resources to invest in property, you have options. You can hold on to
your property and wait for its value to increase before selling it
off for profit. Something else you can do is rent your property.

Renting your
property is a great way to generate steady, passive income. However,
you run the risk of ending up with a bad, destructive tenant. Or
worse, no tenants.

  1. Bonds

When companies and
governments need funds – perhaps to expand, perhaps to build
infrastructure, they can choose not to borrow money from banks.
Instead, they can issue bonds. Basically, bonds are a form of debt
where a corporation/government is the borrower, while you – the
bonds buyer – are the lender.

For example, if you
buy a bond with a face value of $1000, an interest rate of 6%, and a
maturity of five years – that means you’ll consistently receive
$60 of interest per year for the next five years. When your bond
matures after five years, your $1000 will be returned to you.

Bonds are
lower-risk investment, but provide lower returns than, say, stocks.
However, bonds’ fluctuations are also less dramatic than stocks. In
addition, like time deposits and unlike gold, bonds provide a stable
passive income.

  1. Stocks

Stocks are arguably
the most well-known of all investments. Stocks are shares in the
ownership of a company. When you own a company’s stocks, you have a
claim on the company’s earnings – also called dividends. Stocks
are popular for a reason: they offer higher returns than other
instruments like bonds and time deposits. However, stocks are
higher-risk investments, with prices rising and falling dramatically.

Ultimately, there
are two types of stocks: dividend stocks and growth stocks. A growth
stock is a stock in a quickly growing company. However, growth stocks
pay back none of the company’s earnings as the growing company
would rather use their earnings to expand their business. The only
way you can make money from growth stocks is by selling off your
stocks. Dividend stocks are the opposite. They pay stockholders part
of the company’s earnings. The more dividend stocks you own, the
larger your dividend portion.

While you can make
money selling off excellent growth stocks, there is no guaranteed
return. Meanwhile, dividend stocks replaces your income by paying you
back in dividends. It all depends on your risk tolerance.

  1. Alternative Investments

Traditionally,
alternative investments include investments that are not in the
traditional forms of stocks, bonds, and cash assets. Artwork,
antiques, and precious jewelry are all considered alternative
investment.

Once upon a time,
alternative investments were more intended for the wealthy. After
all, you need money to build a painting or jewelry collection.

However, the status
quo is changing thanks to the development of financial technology.
Forms of alternative investments are increasing. A notable example is
peer-to-peer lending.

Peer-to-peer
lending platforms match investors and borrowers via digital
technology. Borrowers get loans with competitive interest rates and
investors are consistently paid back in installments.

Compared to other
forms of alternative investments, the entry cost to investing in
peer-to-peer lending is low. Like bonds and dividend stocks,
peer-to-peer lending is a good source of passive income. While it
does carry risk because borrowers can default, a good peer-to-peer
lending platform will have performed the necessary due diligence.

If you want to know
more about peer-to-peer lending and its benefits, here are some other
resources: 3
Reasons Why Peer-To-Peer Lending Should Be in Your Portfolio
and
Why
We Love Peer-to-Peer Lending
.