With today’s changing world, the world of investing has changed as well. There are now more options available to invest in than ever before! Down below, are some of them in brief.
1) Reason for Investing
First of all, one should think of their reason for investing. Why do they want to invest and the reason behind it? Maybe they want to buy a house, or they might be doing it because they want to help their kids out with their imminent university tuition, or they want to invest for their retirement in the distant future.
In any case, knowing precisely what the investment goal is, helps greatly in figuring out how one ought to invest their money. One should also think about whether they are ready to invest. A person is probably not ready to invest at the moment if they don’t have some kind of an emergency fund that has them set up for around 3 to 6 months in the event of an emergency, or if they currently owe a high-interest debt.
2) What is the overall risk tolerance for the investment?
There is another factor that’s important to consider – risk tolerance. The term risk tolerance refers to how much of the investment can withstand losing. Can the person afford for their entire investment to vanish, without this affecting the quality of their life in any way? If so, this means they have an extremely high-risk tolerance. Whereas, if losing all this money would instead mean the need to file for bankruptcy, this
would mean that their risk tolerance is very low.
Knowing the answers to both how much risk tolerance someone who wants to invest has and why they want to invest will aid greatly in helping to decide what kind of investment and asset allocation is right for their portfolio. If they have a short investment horizon and a lower risk tolerance, they should probably make a more conservative investment, like a Guaranteed Investment Certificate (GIC), bonds, or even standard savings.
But, if they have a longer investment horizon, with money they won’t need for a long time, or with a nest egg or relatives to fall back on, they can feel free to go for a more risky investment that would yield a much higher return.
However, it’s best to talk to a financial advisor or take an investment provider’s risk survey before investing so much as a dollar.
So, down below are some of the options one may be offered:
Check out automated investing
Already tired of thinking about how complicated investing is? Why not look into automated
In automated investing, an automated investing service or robot advisor does all the thinking. This robot advisor will create a diversified investment portfolio, regardless of risk tolerance or investment horizon. This portfolio will contain various investment types, in a combination that matches one’s personal goals.
If one gets a good automated investing service, they should be able to offer a high-interest savings account, if they have a low-risk tolerance. Or, they may offer a growth portfolio, with low-cost stock ETFs, if one has a high-risk tolerance and long investment horizon.
Some robot advisors may even have low management fees, with no account minimums, and unlimited free telephone support. All this, but at only a fraction of the cost that a financial advisor would charge for a similar product!
Other investment accounts and investment products a good automated investing service will offer registered retirement savings plans (RRSPs), tax-free savings accounts (TFSAs), and retirement-optimized tax-advantaged investing accounts.
Consider corporate-owned life insurance
Another investment option is corporate-owned life insurance. This is a product that is great for business owners. Traditionally, the retained profits and surplus cash a business has gets invested in taxable investments. This does allow a business to benefit from low corporate tax rates on active business income, but eventually, these assets will be taxed at high dividend tax rates. However, corporate-owned life insurance is a tax-effective way for a wealthy individual to accumulate passive wealth within a company, access it tax-free, and move it tax-free to their surviving beneficiaries. Check out this article for more on this.
The classic – Stocks
Then there’s the well-known option of stocks, which are small pieces of a public company that anyone is allowed to buy. Just because they have an established reputation doesn’t exactly make them something they can inherently rely upon, though – stocks are one of the most volatile types of investment there are.
Which stocks are best to invest in? Nobody knows for sure how the stock market will turn out, after all, even if everyone knows a guy who knows a guy who invested in Apple and is now fairly affluent. But in general, most people agree that it is a good idea to have a highly diverse portfolio of stocks and to invest a smaller amount across a large group of completely different stocks rather than putting all the eggs in one basket.
Look at investment funds
Want a quick and cheap way to diversify stock portfolio, as mentioned previously? Why not think about investment funds like exchange-traded funds? Lots of ETFs track an entire index, which is something that can easily be carried out by a computer algorithm. So, just one price can buy a small piece of 500 of the most valuable companies on the market!
One place can buy exchange-traded funds is through online investment providers, who will let investments in ETFs while charging way lower fees than the traditional investment providers or large banks.
Think about real estate
Another well-known investment option is real estate. The typical way most people begin investing in real estate is to buy their own house or apartment. However, this is now prohibitively expensive in many areas. In fact, real estate can sometimes be just as volatile as investing in stocks. One alternative to traditional real estate is real estate investment trusts. REITs are companies that sell shares for their own real estate investments. REITs also offer a few major tax benefits that most of the other investment types on this list don’t. So, one gets all the advantages of real estate with none of the leaking toilets or moldy walls!
One can even diversify their REIT portfolio using REIT ETFs.