Money begets money; the right knowledge and the right place can double the amount of your investment. While the economy is dynamic and inflation is rising, it is crucial that you make your money work a little harder. Keeping in a bank account whatever you earn will not let you earn a good amount of money.
Why not invest your money? However, before taking the plunge, you need to evaluate investment options and associated risk. Even if you take credit to cover the entire money you need for making an investment, you need to be cautious. Your one wrong decision may completely ruin your finances.
Before making an investment, you need to determine your risk profile. Each investor has a different risk profile. It comprises two components: your risk taking capacity and your limit for loss. You may get a myriad of investment options but not all are suitable to you.
It is not necessary that you will get the highest returns on the investment you make because all of them are subject to risk. They may rise and fall unpredictably. It is crucial that you evaluate the level of risk you can take without having anxiety. If you stay anxious with ups and downs, you should not take the risk of investing money.
There is a huge risk of losing money when it comes to investment. Do not forget to evaluate how much loss you can afford. Before you make an investment, you should determine your investment timeframe, consider different investment options, and the cost.
If you are intending to invest your money to earn high returns, the following options might help you.
A savings account is the most ideal option to start with a safe investment. Your balance will continue to rise with periodically paid interest. There is no risk of bearing any loss due to unpredictable move by the economy. However, you are not likely to earn a few percents on your savings.
If you are looking forward to getting a handsome amount of money, the property is the best option. Buy-to-let gives the investor a solid investment that they can look at. It will help you generate a fixed source of income. Since the value of property keeps rising over time, you can earn profits by selling your property after a few years.
Peer-to-peer lending is also a good option if you feel that you should not take a risk in buying the property and your bank does not provide attractive interest rates. When you deposit amount in your savings account, your bank uses that money to lend money to borrowers to earn interest. Banks charge higher interest rates than they pay off on your account balance. The difference is their commission or earnings.
Peer-to-peer lending removes the intermediary. This service allows you to lend money to people and entrepreneurs online. You can charge interest rates as per the market rate and the entire profit will be yours.
You will get regular dividend payments if you invest in shares. However, the prices of shares keep fluctuating. This investment is extremely riskier as the price of these assets can fall within a split of a second. If your risk appetite is not very good, you should avoid investing money in shares. However, they can help you earn a great amount of money if the market does not decline.
Bonds are like loans to companies that pay interest on your investment. The bond investment can be riskier as a company is likely to default. However, they are less risky than equities. Before you invest in any bond, you should consider the potential of the company. Make sure that the company has a reputation and has been earning huge profits. Most of the time, people lose money as the company goes bankrupt and embezzle their money. Do proper online research before making a decision.
No matter which investment option you opt for earning high returns, you must be careful with your risk appetite. Do not forget to consider the purpose of making an investment. Your purpose is correlated with your returns. The higher the risk, the higher the return, and the lower the risk, the lower the gains you will get.