What Are the Characteristics of Best Investment Options?

By Soko Directory Team / Published March 31, 2022 | 12:14 pm




KEY POINTS

To decide which investment vehicles are suitable for you, you need to know their characteristics and why they may be suitable for a particular investing objective.


investment

KEY TAKEAWAYS


If you don't know what you are doing, you could get yourself into a lot of trouble. Experts and professionals generally agree that new investors should focus on building a financial foundation before speculating. 


Investing your money is the most reliable way to build your wealth over time. And while there is no universal way to make your money work for you, there is no better strategy than to diversify your portfolio. What matters is your desire for the investment, proper budget, and knowledge on how to balance potential gains as well as risk tolerance.

There are many ways to invest which means you can find an investment that offers a variety of returns and fit your risk profile. The Covid-19 pandemic opened the eyes of many investors to look for better types of investments to protect their financial future.

Of course, to decide which investment vehicles are suitable for you, you need to know their characteristics and why they may be suitable for a particular investing objective.

Here are a few characteristics based on the type of investment:

1. Bonds 

Grouped under the general category called fixed-income securities, the term bond is commonly used to refer to any securities that are founded on debt. When you purchase a bond, you are lending out your money to a company or government. In return, they agree to give you interest on your money and eventually pay you back the amount you lent out.

The main attraction of bonds is their relative safety. If you are buying bonds from a stable government, your investment is virtually guaranteed, or risk-free. The safety and stability, however, come at a cost. Because there is little risk, there is little potential return. As a result, the rate of return on bonds is generally lower than on other securities.

2. Stocks 

When you purchase stocks, or equities, as your advisor might put it, you become a part-owner of the business. This entitles you to vote at the shareholders’ meeting and allows you to receive any profits that the company allocates to its owners. These profits are referred to as dividends.

While bonds provide a steady stream of income, stocks are volatile. That is, they fluctuate in value on a daily basis. When you buy a stock, you aren’t guaranteed anything. Many stocks don’t even pay dividends, in which case, the only way that you can make money is if the stock increases in value – which might not happen.

ALSO READ: How Much Does It Cost A Business To Create A Job In Kenya?

Compared to bonds, stocks provide relatively high potential returns. Of course, there is a price for this potential: you must assume the risk of losing some or all of your investment. (For additional reading, see Stock Basics tutorial and Guide to Stock Picking Strategies.)

4. Mutual Funds 

A mutual fund is a collection of stocks and bonds. When you buy a mutual fund, you are pooling your money with a number of other investors, which enables you (as part of a group) to pay a professional manager to select specific securities for you.

Mutual funds are all set up with a specific strategy in mind, and their distinct focus can be nearly anything: large stocks, small stocks, bonds from governments, bonds from companies, stocks and bonds, stocks in certain industries, stocks in certain countries, etc.

5. Buy Gold & Silver Online

The primary advantage of a mutual fund is that you can invest your money without the time or the experience that are often needed to choose a sound investment.

Theoretically, you should get a better return by giving your money to a professional than you would if you were to choose investments yourself. In reality, there are some aspects about mutual funds that you should be aware of before choosing them, but we won’t discuss them here.

6. Alternative Investments: Options, Futures, FOREX, Gold, Real Estate, Etc. 

So, you now know about the two basic securities: equity and debt, better known as stocks and bonds. While many (if not most) investments fall into one of these two categories, there are numerous alternative vehicles, which represent the most complicated types of securities and investing strategies.

The good news is that you probably don’t need to worry about alternative investments at the start of your investing career. They are generally high-risk/high-reward securities that are much more speculative than plain old stocks and bonds. Yes, there is the opportunity for big profits, but they require some specialized knowledge.

So if you don’t know what you are doing, you could get yourself into a lot of trouble. Experts and professionals generally agree that new investors should focus on building a financial foundation before speculating.




About Soko Directory Team

Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system.Find us on Facebook: facebook.com/SokoDirectory and on Twitter: twitter.com/SokoDirectory

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