Investment; what does this word mean? If you’re new to the investment world, then the term “investment” can sound intimidating. It can feel as though investment opportunities are reserved for the elite who have enough capital to make informed and successful decisions. Well, we’re here to tell you that anyone can get involved in investment opportunities, and the options are not as foreign as you may think. Investments are embedded into our everyday lives, whether it’s obvious or not. We’ve provided an outline of the types of investments as well as excellent investment opportunities for 2021.
What are the four types of investments?
If you type into google “types of investments,” you’ll get a whole host of pages that pop up with different opinions on how investment categories should be broken down. The categories and subcategories can quickly become overwhelming, so we’ve stuck to the top four. One could pursue any of the four main types of investments, including debt investments, equity investments, hard assets, and insurance products.
Debt investments are something that almost everyone has. This type of investment involves loaning your money to a borrower and being paid interest in return. If you have a savings account that pays interest, then you are a debt investor.
Equity investments involve taking portion ownership or a share from a company – think stocks. When you purchase a stock, you own a portion of the company. This type of investment can yield in return through buying and selling shares based on their value or holding onto shares and earning dividends from the company.
Hard assets are investments that are physical items – think rental properties or cars. The major drawback of hard assets is that there is associated debt and the potential for default or bankruptcy. The most popular form of hard assets is rental properties, but one could also invest in commodities like metal.
Insurance products work a bit differently than the types of investments we’ve reviewed thus far. An example of this type is life insurance. You pay into this type of investment, and then when you reach a certain age (or life event), the company begins paying out.
Which type of investment is best?
The answer to this question will look different from person to person. The best investment returns are ones that someone can manage confidently. For example, if you pursue hard assets (i.e., rental properties), but lack the capital to make property modifications or manage the property, then you likely won’t be successful in that investment. The answer to where to invest money to get good returns depends primarily on one’s knowledge, capabilities, comfort, and start-up capital. If you are starting up with little to no means and do not wish to take a risk, then you may consider starting off with a high-yielding savings account. However, if you have little to no capital and want to take high stakes, then you may consider equity investments, such as stocks. It’s okay for your goal to adjust over time as well. You may start off with very little and work your way up to hard asset investment, and that’s okay! The moral of the story is that the best type of investment is one that has the best probability for success.
What is a good investment opportunity?
A good investment is one that has a high probability of success. The return defines success – if your investment yields a high return, it’s successful. A good investment is also one that will increase in value over a long period of time. Probability is a big determiner for a good investment; remember that there is a difference between possibility and probability. An investment that has a possibility of yielding a large return is much riskier than one which has the probability of yielding a return. The risk for your investment should be relatively low. Of course, there are times when you may experience a loss due to the volatility of the industry, but suitable investments will amount to value in the long run. Remember, look for safe investments with high returns. The best place to invest money right now is one that will provide you value in the long run.
The best investment opportunities of 2021 are diverse. As with all investment-related questions, there is no one correct answer. The best investments for 2021 will largely depend on individual goals and abilities. Despite this, we’ve reviewed a handful of popular investment opportunities. One could choose to invest in cryptocurrency, rental housing, a high-yielding savings account, or a dividend stock fund.
If you haven’t heard of cryptocurrency, then you’ve likely lived under a rock! Cryptocurrency is taking the world by storm, and many are investing in hopes that the trend will continue to rise. In 2020, the price for a Bitcoin was below $10,000, and at the start of this year, that price skyrocketed past $30,000. Unfortunately, Bitcoin is a highly volatile market as the price has fallen back some over the past couple of months, and the FDIC does not back the coin. If you are someone who enjoys taking high risks, then cryptocurrency is the investment option for you. Here you can choose platforms to trade crypto. The perk of cryptocurrency (other than its rising price) is that it’s liquid, meaning you can buy and sell at any point during the day. Find a good broker with low costs, as cryptocurrency tends to have high commission costs.
Rental houses can yield great value if you’re willing to manage properties. The influx of Airbnb has also proved to be an excellent option for property management. Mortgage rates are hitting an all-time low, so now is the time to strike if you are considering pursuing this investment opportunity. However, the unstable economy may make it challenging to run the properties as tenants are more susceptible to default if they are unemployed. A rental house investment is an excellent opportunity for people who want a long-term investment and want a steady cash flow. The downside of rental housing investments is that you will have to deal with tenants, which may entail 2:00 am calls about an emergency. Rental housing is the least liquid investment because it takes time to sell a house, of course!
A high-yield savings account pays interest based on the balance. These types of savings accounts differ from your average savings account in that there are fewer overhead costs, meaning that the interest rates are much higher. This type of investment is great for those who want no risk because there isn’t any! Simply put your money into the savings account and wait for it to grow. The downside of this option is that you do risk inflation hampering the purchasing power of your cash. However, this is an excellent option for someone who may need the money sooner as opposed to later as this is a highly liquid option. You can add or remove funds whenever needed; however, some banks limit their patrons to six withdrawals per statement period.
Finally, you may consider a dividend stock fund. Dividends are a company’s profit that they distribute among shareholders quarterly. To ensure success with this investment, you’ll want to do some research to figure out which companies will likely have increasing dividends as years go by. This is another safer option because you are paid for owning a share of a company. The share can help you earn funds in the long run, and the dividend payout can help you accumulate funds in the short run. Those who need a steady stream of income now may benefit from this type of investment. Shares also have liquidity, as you can sell your share any day the stock market is open.
What should a beginner invest in?
Good investments for beginners will largely depend on their starting off capital. As discussed previously, starting off with little to no capital limits your options for investment options. However, capital can build over time and open more doors. A good investment for beginners is one that they can afford and feel passionate about. When we say “afford,” we don’t mean funds from a primary account that may otherwise be needed for rent, but instead funds from a separate account that you can afford to lose. Investments are often not guaranteed (aside from savings accounts), so it’s crucial to invest what you can and not overextend yourself financially. Moreover, if you are starting off with no knowledge of the investment you’ve chosen to pursue, then you will likely make more mistakes, so it’s essential to be Well-informed of your investment choice. Be sure to understand the probability of the investment’s success and signs to look for to help predict that success.
Whether you’re a novice or a beginner looking to enter the world of investments, we genuinely believe that investments are the wave of the future. More and more people are jumping on board to help gain financial stability, plan for retirement, or help pay for large purchases. As you continue this journey through the investment world, we wish you luck. Happy investing, friends!