Where to invest?
Have you decided to invest your hard earned money, the next hurdle is where to invest the money and what the returns you can expect from there.
When it comes to investing one has to choose an asset class that suits the individual’s risk and return temperament.
An asset class is a category of investment with particular risk and return characteristics.
Read about things to know investment
Asset Class Types
Equities, or stocks; bonds, or fixed-income securities; cash, or marketable securities; and commodities are the most liquid asset classes. There are also alternative asset classes such as real estate, artwork, stamps and other tradable collectibles. The more alternative the investment is the less liquid it will be. That said, an asset’s illiquidity does not speak to its return potential; It only means it may take more time to find a buyer to convert the asset to cash.
The following are some of the popular assets class…
- Fixed income instruments
- Real estate
- Commodities (precious metals)
Fixed Income Securities
These are investable securities with very limited risk to the principle and the return is paid as an interest to the investor based on the particular fixed income securities. The interest paid, could be quarterly, semi-annual or annual intervals. At the end of the term of deposit, (also known as maturity period) the capital is returned to the investor.
Typical fixed income investment includes:
- Fixed deposits offered by banks
- Bonds issued by the Governments
- Bonds issued by Government related agencies
- Bonds issued by corporate’s
Investment in Equities involves buying shares of publicly listed companies. The shares are traded on stock markets.
When an investor invests in equity, unlike a fixed income instrument there is no capital guarantee. However as a trade-off, the returns from equity investment can be extremely attractive.
Real Estate investment involves transacting (buying and selling) commercial and non-commercial land. Typical examples would include transacting in sites, apartments and commercial buildings.
There are two sources of income from real estate investments namely – Rental income, and Capital appreciation of the investment amount.
Commodity – Bullion
Investments in gold and silver are considered one of the most popular investment avenues. Gold and silver over a long-term period has appreciated in value.
Investments in these metals have yielded a CAGR return. There are several ways to invest in gold and silver. One can choose to invest in the form of jewellery or Exchange Traded Funds (ETF).
A note on investments
Investments optimally should have a strong mix of all asset classes.
It is smart to diversify your investment among the various asset classes. The technique of allocating money across assets classes is termed as ‘Asset Allocation’.