The first thing a person who wants to invest money needs to do is to decide on the goals and objectives. If the calculation is to save money, some projects are suitable, for those who want to increase the amount of money or to receive a permanent passive income, you will need to pay attention to other ways of investing.
Therefore, before considering specific examples, it is necessary to understand the types of investments and their differences. Only after that, having understood which of the options best meets your goals, you can choose where to invest your money – check https://capital-invest-skiy.com/.
Categories of investment methods
Investments are divided according to several main parameters:
- objects of investment;
- terms of investment;
- risk level;
The main classification that allows to determine what exactly a particular investor is investing in
- speculative – shares of companies, currency and other objects, which bring profit when sold after the increase in value;
- financial – financial market instruments, which bring profit through exchange transactions
- real – real estate, other tangible assets, business investments or buyout of copyright
- venture capital – investments in potentially successful projects and start-ups.
Each type of investment has its own characteristics and requires a completely different approach – tells Kirill Yurovskiy.
When investing money, the investor initially counts on a certain payback period. According to this indicator investments are divided into:
- short-term – with the expectation of results within a year;
- medium-term – payback time of 1-5 years;
- long-term – the calculation of the result for a period of 5 years or more.
Beginner investors with small amounts of investment often choose the first option – they need to quickly return the money invested in order to invest it again in other projects. Investors with large and medium capital have the opportunity to go beyond one type of investment and choose several options with different payback periods.
In addition to the types listed above, there are annuity investments. This type of investment allows the investor to receive regular profits, which can be fixed or depend on certain circumstances.
Risk level and profitability
These two notions are interconnected – the higher the expected return on investment, the higher the risk of losing the investment. It is desirable, if possible, to allocate funds to projects whose risk level varies by:
- small – conservative investments in deposits and securities, the income on which is fixed;
- medium – moderate risk and the same level of income gives shares, real estate, some other object;
- large – aggressive highly remunerative investment in objects which cost depends in many respects on fluctuations of the market.
As the risk is the probability of capital loss, lost profits, failure to receive the expected income. But also possible profit from high-risk investments can considerably exceed the income received from conservative kinds.
Liquidity of assets
A very important indicator for the market. It depends on how quickly the asset can be sold. According to the level of liquidity, investments are divided into:
- Highly liquid – sought-after assets with quick sale, for which a buyer can always be found, characterized by a minimum level of risk;
- low liquid – objects with long realization and slow change of the price, at urgent sale can lead to losses;
- illiquid – assets with long realization, cost at sale can be both less, and more than initial.
Illiquid assets do not necessarily include those that will not make a profit. For example, premium real estate is gradually increasing in value, but it is quite difficult to quickly find a buyer for such an object with a profit on the invested one.
Where to invest money
Once the goals of investment have been determined, you can choose specific objects. Many investment options are available to private investors, but some of them should be discarded immediately if a person does not have the appropriate knowledge. Investing in antiques, philately or some other more original ways can bring benefits, but only if a person is a true expert and understands the subject. Otherwise the money will be spent in vain. That’s why in the first stages it is better to choose something that is time-tested and available to anyone who wants to invest money.
Savings accounts and bank deposits
A classic method of earning income. Bank deposits are the least risky asset. Deposits are reliable, but their annual rate for a long time is almost equal or slightly higher than the inflation rate. That is why they can be considered only as a way to preserve, but not to multiply capital. If this rate offered by a bank is higher than that of other financial institutions, you should consider the position of the bank itself, perhaps by attracting new depositors it is trying to improve its position. Second-tier banks can offer higher rates, but in this case there is a risk of Central Bank sanitation and revocation of the license. In this case, depositors get a refund of the amount deposited.
Deposits in foreign currency bring even less interest, and in European banks these figures are even lower. Therefore, this type of investment should not be considered as an investment at all.
A similar type of deposit is a savings account. Depending on the conditions (the amount invested, the options for closing the account, the ability to withdraw money) the interest rate varies, but also rarely exceeds inflationary processes. Now savings accounts are offered not only by banks, but also by insurance companies. In each case, you have to consider the specific situation.
The second most popular way of investing. Such investments are inferior to banks in terms of reliability, but they can bring higher profits. However, the high level of entry into the market is an obstacle for most people wishing to purchase such assets.
The convenience of such investments is that they can generate passive income in the case of renting. The second option is suitable for short-term investments with a high return and is to buy an apartment at the stage of the foundation and resell the object after construction completion. However, both options have their disadvantages.
In the first case, you need to prepare the apartment or the house for rent: buy furniture, appliances, make repairs. After that you need to find tenants, and then monitor the condition of the apartment and the timeliness of payments. If the rent is higher than the amount paid on the mortgage, the property can be purchased with a minimum investment in the down payment from a bank loan. This method is good that in addition to monthly income the asset itself will bring the potential profit, gradually increasing in value.
In the second option, the risk is that the object will not be completed, if the company-developer does not have enough financial or material resources. Therefore, this option will require a thorough check of the history of the developer and its financial statements.
Another option for investing in real estate is to buy a room in an apartment hotel. It is suitable for those who do not want to take over the management of real estate. Apart-hotels work as hotels, which are managed by specialized companies, and the owners of each room are private individuals or legal entities. They are responsible for room occupancy, advertising, building repairs, etc. Investors are offered several programs with a certain percentage of profitability.
In the latter case, the risks are not too great, and the yield exceeds the level of deposits. Besides, apart-hotels are built in places with high traffic and well-developed infrastructure, both social and transport. Therefore, with the lapse of time the growth of such asset’s value is mandatory.
Bonds are securities issued by companies or the government, in which the issuer (the one who issued them) undertakes to pay back in a specified time the amount spent by the investor, along with certain interest. The issuance of bonds can be compared to borrowing money against a receipt, where the bond is the counterpart of such a receipt.
There are several types of bonds:
- State bonds – the safest defaults can occur only when a default is declared or in other crisis circumstances;
- Municipal bonds are issued by local governments and the funds go to the local budget;
- corporate bonds – bonds of commercial companies, terms of issue depend on the rating and status of the company;
- Eurobonds are securities issued abroad.
Secured and unsecured bonds are issued. The first are more reliable, while when buying the latter, the risk of repayment is borne by the investor, who needs to check the reputation and credit rating of the borrower.
The investor’s income depends on the coupon, which is the amount of payments on the bond, and the change in the value of the security. The coupon is paid either quarterly or every six months. If no payments are made, the coupon amount is accumulated and given to the investor when the bond is sold to the issuer.
The amount received on the coupon is tied to the face value of the security. The price of the bond gradually changes after issuance, and it can be sold either more or less than its original value. The loan is repaid on the date specified at issuance.
Bonds are attractive because they offer a fixed income that is higher than bank deposits. Particular reliability distinguishes government securities and blue chip bonds (companies included in the list of highly reliable).
Securities of other issuers can bring more profit, but they are riskier. Bonds that yield dozens of percent are called “junk” and have a low rating.
This method of investment is suitable for those wishing to have a guarantee of return on investment and an average income. You can purchase them by opening a brokerage account or individual investment account.
Investments in securities are made to earn a return above the market average. They carry a higher degree of risk than bonds or bank deposits.
Owners of stocks can expect to resell them when their value increases, as well as to receive dividends. The amount (and availability) depends on the financial health of the issuing company and the decision of the shareholders’ meeting. The meeting may decide not to pay dividends, in which case the owner of the securities does not receive a profit for a certain period.
Preferred shares and ordinary shares are issued. The main difference between them is the procedure for receiving dividends. In addition, the possession of shares allows one to participate in shareholder meetings.
Shares are seen as one way of investing for the long term, but they can also be used for short-term investments. In the latter case, the calculation is not to receive dividends, but to sell the securities at a higher price than they were purchased.
Investing in precious metals is not buying them in reality, but investing in “metal” accounts. Buying real bars, coins or products is unprofitable, since it requires payment of VAT and storage fees for the metal. Unallocated metal accounts do not have these disadvantages.
The profit from such investments depends on the increase in value of gold, platinum palladium, silver or other chosen metal. Their price invariably increases with time, but it is rather difficult to foresee exactly when and how much the value will change. As a short-term investment this tool is poorly suited, but for investments for the long term it is advantageous to have in the investment portfolio.
Venture Capital Funds and Startups
Options suitable for those interested in high-risk projects with potentially equally high returns. You can invest in a startup that promises high interest, as well as in a fund that supports such areas. Theoretically, such investments are capable of earning 100 percent or more. However, there is no guarantee that the money invested will not be lost. According to analysts, no more than two or three out of ten such projects turn a profit.