Monday, August 12, 2013

Which Investment Vehicle should I take a spin in?

With all the different types of investment, how does one make a choice about where to put their money?

I thought that I'd make a table to show you my perceptions of the different kind of investments, but then I realised that I'm lazy, so I'm just gonna do it in text!

Cash, Fixed Deposits and Money Market
There are all low risk, low returns. Money Market funds are by far the best of the 3, since it is just as liquid as cash (but not as instant). FDs have your money locked in and gives horrible returns.

Penny Stocks, Non-dividend Stocks, Dividend Stocks, Penny Stocks, Preferred Stocks
Equity, now this is where all the big bucks are made. Most stocks go up in value over time, some fall too (penny stocks). My view on preferred stocks is that you might as well get dividend stocks instead. Then you'll be sure that you'll receive dividends, since I doubt you're planning your stock to liquidate.

Treasury Bonds, Corporate Bonds, Junk Bonds
Bonds are interesting because they are seen to be mostly safe. However, bonds can actually give you negative returns under special market circumstances, such as rising interest rates and high inflation. The fixed income that comes from bond is a definite plus point though, plus its low volatility.

ETFs, Index Funds
Based on the preachings on Grahm, if you can't beat the market, you might as well just go along with it. ETFs and Index Funds are pretty much the same thing, with slight differences. However, I feel that both these methods have already given up before even trying. As a first time, young investor, I think I have the risk appetite to try and perform beyond the market average.

Forex is worse than gambling. The leverage is insane, which makes your profits, and losses, go through the roof. Unless you're able to see the huge picture and can predict currency movements, I don't really think forex is considered an "investment".

Real Estate
Not many investments are as steady as real estate. Plus, real estate is one of the few investments that you can actually enjoy while watching it increase in value. However, the huge huge amount of starting capital is the major deterrent for most people. 

Mutual Funds
Going into mutual funds is admitting that you don't know how to look at the individual investment types and assess them compared to others in the same category. Basically, you're paying a fund manager to be your proxy and have put your money and faith into his hands, because you believe that you definitely can't do better than him.

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