Distinguishing Between the Best and Worst Investments
Distinguishing Between the Best and Worst Investments
Investing is not a pursuit that can be described as a precise science. The most straightforward method for assessing any kind of investment is to see, statistically, how many people get their money back on the investment and how many experience returns above what they invest. Therefore, investments that provide a healthy return are generally considered good while those that lose money or fall short of what you put into them money-wise are decidedly poor choices.
Bad and Good Investment Choices for the Average Investor
The following listing a bad and good investments is not designed to be used as a reference for developing a financial plan or strategy but is merely provided for conjecture and consideration. Everyone’s tolerance for risk varies. Therefore, it is essential to look at financial investments and strategies objectively. While some investors temperamentally can handle the volatility of certain investments (such as stocks), others feel more secure in establishing a conservative portfolio for investment purposes.
Residential Real Estate
Without question, the investment that outranks other investments for most people relates to where they live. The investment in a home keeps pace with inflation and typically appreciates. Therefore, investing in a home is the best way for the average investor to reap a reward for his hard-earned money. This is a simple plan to follow and establish. Therefore, home ownership should be made a priority when building an investment portfolio.
While a rental property can, indeed, reap you with a healthy return on your investment, you also have to display the type of personality that is required for this type of investment choice. That is because you have to be willing to evict non-paying tenants – hard to do if you are more of an accountant than a manager. However, if you can find a property that is conservatively priced, you might be able to adjust your stance. The rents from tenants are usually used to pay off your mortgage. Therefore, eviction is necessary, at times, if you want to realize a profit.
If you are not prepared to take on the duties of a landlord, you might consider investing in a real estate investment trust or REIT. This type of investment uses your money to invest in various kinds of real estate or in one sector of the market, such as medical buildings or facilities. REITS usually provide a steady financial reward for anyone who wants to invest in tenant-based properties but does not want to deal with the issues involved with property management.
Mutual Fund Accounts
Mutual funds are designed to attract average investors. The concept is based on a pooling of money. A large number of investors pool their money to buy a broad range of securities and stocks, all in an effort to spread out the risk. The accounts are good investments because –
- You only need to invest small, incremental amounts
- Professional management of the fund is offered
- Flexibility is offered through the shift of funds between various investment asset accounts
Insurance Annuities and Whole Life Insurance
Insurance coverage and higher yields form the basis for annuities and whole life insurance products. If you want to invest for the long-term, then choosing to invest in a whole life insurance policy or annuity should be considered. A whole life policy can also be used for borrowing purposes. Therefore, you not only make it possible for your family to be financially protected, you can borrow on the policy in case of an emergency.
Company Retirement Plans.
Investments made available through company retirement plans are similar to any you might select yourself. One major benefit of a company-sponsored plan is that the funds in it are tax-deferred. In addition, many companies that offer plans also match the contributions made by the participants.
Although they are not considered the best performers, government-backed securities are considered very safe and secure. In fact, they are probably considered the most secure of all investment choices.
Not-so-Good Investment Choices
If you choose to take part in commodities trading, then it is important to realize that this is not one of the more secure ways to invest your money. The market is volatile. Therefore, you can make a lot of money but you can also lose your shirt, so to speak. If your goal is to see your money grow, then this is a precipitous step to take.
Tax shelters are mainly used to defer income taxation. Therefore, their economic value can only be realized if the investor is wealthy, or makes a great deal of passive income. People who earn their income generally will not benefit from this kind of investment approach.
Unless you are professionally involved in the gem trade or are one of a few of very rich gem collectors, any diamond purchase should be regarded as a keepsake rather than an investment.
Items such as porcelain, artwork, coins, stamps and books fall under this investment category. If you are a non-professional collectibles investor, or only dabbling in these kinds of investments, you will find that securing and selling the items can be long and drawn-out process. Plus, the financial rewards are limited, given the time spent liquidating the investments for cash.
Although a professional and knowledgeable stock trader can regularly make money in the stock market, the average investor is not trained to accurately speculate on the stocks that will do well and those stocks that will not. If you invest in a blue chip stock and leave it alone for about ten years, it probably will keep in pace with the rate of inflation and give you about a four percent gain.
However, most average investors do not buy a stock to maintain it for a sizable length of time. Usually, the average Joe or Jo will move their investments from one stock to the next to reap financial benefits. Because they lack professional expertise, average investors normally reap only a small ROI and even, in some cases, lose the initial investment.
Once you know both the pros and cons of various investments, you can better decide how to make and spend money. The choices you make have a lot to do with your temperament, the knowledge you have of the investment where you wish to place your money, and your own risk for tolerance. Hopefully, the above overview will give you a better idea about how to proceed.