If you have a certain amount of “free” funds, probably at least once you asked yourself a logical question: where to invest money to make money? The most logical answer to it is in a bank. However, interest rates in all banks now, including long-term deposits, are so low that they do not even cover the annual inflation rate. For this reason, the investment market looks more attractive. Today we will tell you about available ways to invest and their peculiarities.
When it comes to investing, the first thing that comes to mind is stocks. Indeed, it is one of the most popular ways to invest, especially in the long term. In fact, a stock is an official confirmation that its buyer gets a stake in the capital of the company that issued it. But in practice, one buys them not for the opportunity to vote or the right to receive property upon liquidation of the firm, but to make money on the trade.
The key point when buying shares is their liquidity. Simply put, it is a measure of how much a particular asset is in demand on the market, how easy it is to buy or sell at any given time. The second most important is the price. It is not constant and fluctuates depending on supply and demand, as well as the status of the issuing company.
There is also an additional “nice bonus” – dividends. These are payments that the company distributes to all shareholders. They depend on the type of stock and the amount of available funds in the capital. It makes no sense to invest in shares only for the sake of dividends – the income from them for small investments is insignificant. You can buy stocks by opening an account with a broker. We told you earlier how to choose one.
Bonds are the second most well-known type of securities. Bonds are in fact a promissory note, through which the issuer raises new funds, while stipulating in advance the terms of debt repayment to investors and setting the interest for the use of borrowed funds.
Bonds can be:
- State – issued by the state itself.
- Corporate bonds are issued by individual companies or corporations.
Government bonds are considered low-risk because the likelihood that the government will not be able to redeem issued securities is close to zero. However, the yield is only slightly higher than that of conventional bank deposits – 6-9% per annum. For this reason, investors usually purchase government bonds only for the protective part of their investment portfolios.
Corporate bonds offer substantially higher returns – up to 20-25% per year. However, the higher the interest, the higher the risks, because no one can guarantee the financial stability of an independent company.
Mutual Investment Funds (MIF)
A mutual fund is a “product” in which the funds of several investors are pooled for the purchase of assets under the management of a professional manager.
This solution has several advantages:
- It is convenient – you do not need to understand the intricacies of stock trading and follow the dynamics of prices yourself.
- A properly structured, diversified investment portfolio – if the value of one of the assets drops significantly, it should not significantly affect the final result of the investment.
- Professional management – the manager is interested in making a profit, as he gets a percentage of it.
- An opportunity to invest in companies with expensive stocks, for which there is not enough money for personal investments.
- Variety – you can choose a mutual fund with different levels of income and risk. Here, as always, the rule works – the higher the income, the higher the risks.
Forex is also a very popular way of investing, based on the purchase and sale of currencies of different countries. Generally, Forex is the most liquid and largest market in the world, which operates 24 hours a day, 5 days a week. The degree of risk and return here depends on the selected currency pairs, more precisely, on their volatility and liquidity. Also, on the level of real income, at least, is influenced by the economic situation in the country of the selected currency, the global economy, and directly your trading experience.
PAMM (aka PAMM) account – is the Percent Allocation Management Module – trades manager repeats on the accounts of investors in proportion to the funds invested. The investor chooses a PAMM account with suitable parameters from the broker rating and invests in it.
The proceeds are distributed between the investor and the trader in accordance with the established rules. In this case, both parties stand to gain:
- The investor, who has no experience in trading, entrusts funds to a more experienced trader, while not wasting personal time neither in training nor in trading.
- The trader not only receives a percentage of profit (this is the main factor motivating him to work for the result), but can attract an almost unlimited number of investors. This gives him a high income and an opportunity to “play big”.
Options is a contract by which the buyer of an option gets the right to buy (Call) or sell (Put) the underlying asset (commodity, security, currency) at a certain point in time at a predetermined price, such price is called the “strike”.
The obligation of the seller of an option is to sell or buy that asset on the date of exercise at a specific price.