Are you sitting on some money and unsure what to do with it? Several investment options are available for different asset classes if you’d like to see your portfolio grow.
Each option has potential risks and benefits, so it’s worth weighing them before making any decisions. Just remember that investments with a higher level of risk will often reap the most rewards in the long run.
The different types of investments
If you want a significant investment return, it is possible to make that happen with any of these five major asset classes.
However, each type of investment will perform very differently as time goes on. And while the hope is that the result will be a sizable profit no matter what direction you choose, it’s essential to know what you’re getting into before you make a start.
Also known as “equity” or “shares,” buying stocks might be the first thing you think of when you hear the word “investment.” However, as popular as they may be, stocks are widely considered risky investments.
Stockholders are as likely to see substantial losses as significant gains as stocks are immensely vulnerable to market volatility. Many investors attempt to alleviate the level of risk by looking at the performance over time of different listings on the Stock Exchange. It’s important to remember that past performance does not guarantee any future success.
In 2020, the market was particularly volatile, and companies of all types felt the turbulence — even those that had previously seemed pretty untouchable. Flight Center Travel Group Ltd was the year’s worst performer, as travel ground halted in the wake of coronavirus restrictions.
If there’s one thing that the unpredictability of 2020 has shown us, you never know what struggles the stock market might face and how your shares will suffer as a result.
2. Fixed-income investments
Buying government or corporate bonds are considered a far more stable investment option than investing in stocks.
When you invest in fixed income assets, you have legal assurances (in the form of a contract) that you will receive interest payments over a specified period before the original payment is returned to you once the bond has matured.
Bonds are still vulnerable to sudden shocks that shake the market, although a diverse portfolio can help offset the risks.
3. Savings accounts
Savings accounts are both the safest investment option and the most liquid. However, since they are relatively safe, they are also the least lucrative by quite a long way; recent economic hardships have made them even less so. Savings account rates currently pay around 0.6 percent APY or about nine times the national average of 0.07 percent.
While the low-interest rates are likely to put some investors off cash assets, balancing the desire for a good return on investment with the stock market’s volatility is essential. You might not accrue impressive returns with a savings account, but you won’t make a devastating loss.
Beyond the three traditional asset class types, including stocks, fixed-income investments, and cash assets, there are other alternative asset classes. Property investments fall under this category.
Property is expensive to get involved in, house prices have been skyrocketing recently, and wages are not growing to reflect the market’s new realities. Property is a moderate to high-risk investment, even though buying a property is as much an essential part of life as it is an investment for many people.
The return on investment from investing in property can be substantial. You must be in the game for a long time to make significant gains. It’s usually suggested that you hold onto your investment for a minimum of seven years before trying to liquidate your assets or reinvest your profits.
Cryptocurrency has posted both massive gains and losses for investors. And with the crypto markets entering a bear trend, many investors are taking advantage of the dip. It’s necessary to point out that when bitcoin enters a bear market, the asset can drop as much as 80% from its all-time high (ATH), which is a lot to stomach for most investors.
Bitcoin and cryptocurrencies are cyclical investments, meaning that they revolve around a publicly known event called the “Bitcoin halving,” whereby the bitcoin mining rewards are cut in half, which causes the supply to decrease, demand increases, and causes the price of the asset class to skyrocket. This event happens every four years, and the next bitcoin halving event is scheduled to take place in April 2024. The taxation is also quite complicated too.
Just be aware that this asset class is highly volatile, and due to the developing behavior of the asset class, it is still relatively new and often referred to as the “wild west.” Anything can happen. Companies like 3 Arrows Capital (3AC) went belly up, the Terra Luna Foundation’s coin imploded by around $42 billion, and Celcius filed for chapter 11 bankruptcy.