The push and pull between safety and growth in finances is probably the reason why many people are afraid of investing. With safety, you are sure your principal is protected, but there is not much growth for the future. If you are not careful, you could even lose money with safe investments if the inflation rate skyrockets like they do today.
That’s where growth comes in, because as risky as it often is, the best long-term investments grow your money over time. A famous comic once said ‘everything in excess broods’ trouble for a man.’ Balance serves as the ideal way to stabilize safety and growth, and these four investment strategies will do just that for you.
Stocks are the ultimate long-term investments. You don’t have to manage a business or property since they are paper investments, but perhaps their best advantage is that stocks rise in value over time and offer you a spectacular profit. The dividends provide you constant steady income, and if you decide to sell, they are liquid so you can buy and sell fast and easy. It’s difficult to lose all your money unless you invested in a company that goes under.
The hardest part you will have is predicting whether a stock will rise or fall. Mastering this skill, however, is the difference between earning and losing money. For instance, if a stock has been growing for several years, a correction is likely to occur.
You can either sit on the sideline or wait for the best time to buy or jump in and earn some cash before the correction happens. Because it’s hard to know when to jump in and when to sell, you need to understand the point at which stocks are fairly valued and know what will cause the downtime, then decide the best time to buy or sell.
Real estate REITs
REITs are the mutual funds of real estate. The funds are invested in commercial real estate either directly as equity REITs or by holding a mortgage or mortgage REITs. Some REITs invest in a single development, others in dozens of them, while others diversify to foreign real estate markets.
According to Money Monarch, REITS earn you passive income with a yield of around 10% profit on your investment, just like mutual funds do. They are not the only form of passive income you can invest in, however, so visit the site for more ideas on how to earn passive income, earn extra money, and learn more about investing in REITs and real estate.
There are five types of REITs you can invest in. Residential REITs pull money from multi-family apartment buildings and manufactured housing. Before investing, check the home market and home affordability. Healthcare REITs invest in hospitals, nursing facilities, retirement homes, and medical centers.
Look for a diversified group of customers and invest in different properties as opposed to putting all your money into one REIT. Office REITs invest in office buildings while mortgage REITs invest in mortgages instead of real estate itself.
Mutual funds and Exchange-Traded Fund (ETFs)
Mutual funds allow investors to pull their money together and have the funds managed professionally for them. The fund can put the money in stocks, bonds, and other assets. The first major choice you must make is deciding whether you want to beat the market or mimic it.
Active funds are usually more expensive because of the human touch involved as the fund manager tries to beat the market. Also, your fund manager may beat the market short-term, but it hasn’t proven very easy to beat the market long-term and regularly.
The passive approach is gaining in popularity, mainly because of the hands-off approach, cheaper funds, and lower fees. The advantage of passive fund is that if the Standard and Poor’s 500 increases by 5% that day, your fund would have also increased with the same amount.
ETFs may be set up the same way as bonds, but the major difference is that the portfolio will have stocks, bonds, and other investments. ETFs can be traded on an exchange like a stock, but what’s interesting about them is having different components in one security basket as opposed to buying them individually.
You can invest in the Bond ETFs, which have government bonds, state and local bonds, and corporate bonds. Industry bonds track a particular industry, say technology, oil, and gas, or the banking sector. Commodity ETFs invest in crude oil or gas while currency ETFs invest in foreign currencies. Inverse ETFs invest in stocks where they sell stocks when it’s high and repurchase it when the price falls.
During the financial meltdown a few years ago, banks became very hesitant to make personal loans, especially to individuals and small businesses. While this is an understandable security move for the bank, it left a lending gap that was smoothly filled by peer-to-peer lending.
Although this investment is not entirely risk-free, you invest in small solvers of the loans allowing you to invest as much as you are willing to lose. You also choose the loans to participate in, having full control of where to put your money.
Because peer-to-peer cuts out the middle man or bank, the loans are mostly unsecured personal loans which pose a high risk of defaulting. Always check the borrower’s grade which includes their credit score, income (debt-to-income ratio), loan amount, loan purpose, as well as loan term.
Most platforms usually work with borrowers whose credit score is at least 600 and they don’t lend to people who recently filed for bankruptcy. This, combined with not purchasing a whole loan, reduces the risk of defaulting and loss of investment significantly. The platforms handle all the administrative tasks an submit the monthly payments to you less a 1 per cent management fee.
The best way to have a stable portfolio is to balance between long-term and short-term investments while diversifying between sage and growth options. Invest with a goal and make sure you understand what you are investing in.
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