It is prudent to invest in something that will bring back reasonable returns. Broadly speaking, there are two basic types of investments – real estate and the stock market. They can both work, but which is better will depend on each individual situation.
If you can, start saving and investing at a young age – even if your resources are small. With time and the development of your career, you will not miss the money that you have invested and it can grow into a nice nest egg that will come handy later in life.
If you have little money to invest, put at least a small, but regular sum aside each month into a bank account. Ten percent of your income is a good guideline that financial advisors tend to agree on – but if that is too much, any amount is better than nothing and will increase with regular deposits. The interest on a savings account may not be much – perhaps 2-3% – but it will grow and compound with time.
Apart from generating interest, the money will be there for you in case of an unexpected emergency. Also, over time you may have enough for a deposit to buy a home – which is almost always an excellent investment, as long as you can afford the mortgage payments. So start with a savings account and patiently watch your money grow over time.
If you know that you will not need a certain sum of money for several months, consider a term deposit. It pays more interest than a savings account and you can decide on the term, which can be anything from one month or less to one year or more. Three- to four-month term seems the most popular and often the most advantageous as far as the interest amount paid.
When you put your money into a bank account, the money will be invested further – the bank will again put it in either the stock market or real estate. You may be able to receive more profit by avoiding the “middle man” – the bank – and investing directly.
As far as real estate, investing in a home is a good step if at all possible. If you can save for a home deposit and qualify for a bank loan, this is an excellent investment with several advantages. The main one is that instead of paying rent every month, your mortgage payments go toward your own property. Most properties evaluate over time and when you finish paying your loan off, the home is likely be worth more than what you bought it for.
For this to happen, however, make sure that the location is as good as you can afford without taking undue risk that you won’t be able to keep up the payments. Also, choose a home and location where you will feel good living for at least several years.
If you have to sell, for whatever reason, after only a short period, you may lose. This is because the costs of borrowing money, selling the property, and moving elsewhere may exceed the evaluation of the home over a short term.
So carefully consider the risk, and if it feels reasonable, seriously consider finding a home to buy. While debt is generally best avoided, a mortgage debt can be considered an exception to the rule if there is a relatively small risk of defaulting on payments and if the property is likely to evaluate.
The third option for investing is buying into the stock market which broadly includes shares, managed funds, and precious metals (such as gold). For those who are not familiar with the system, this can seem intimidating and a bit of an overwhelming option – it was for us, until we learned more about it.
It can be good to work with a trustworthy financial advisor who can help you invest your money soundly and based on your situation and needs. While financial advisors don’t work for free, a good one can be worth the fees they charge. You will have peace of mind and also the fees are subtracted from your investment gains, so in a way, you don’t have to worry about them and are not directly aware of them.
Investments can be conservative with a moderate gain and low risk of loss, as well as more aggressive with potentially greater yields, but also greater losses. The degree of risk that one is willing to take for a potentially greater gain depends on each person and their situation.
Historically, the stock market has had short-term ups and downs, but over the long term, it has gone up. Every few years, favourable periods alternate with unfavourable ones. However, the market has so far always recovered from both smaller and greater setbacks – even the Great Depression of the 1930s and the Global Financial Crisis of 2008. So, the hope is that the market will again bounce back when the next downturn comes. And in the long run, the gain from your investment is greater than that from savings or term deposit interest. Also, if money is quickly needed, it can be gotten out of the stock market within a few days by selling some shares – which is not possible with a property investment.
If you don’t feel comfortable with the stock market – due to not having anything tangible in hand or for other reasons – and cannot afford a house or apartment, a block of land may be a good option. Again, the location will be important. If you keep the land over several years and it is in a good location, it is bound to evaluate. You can then sell it for a nice profit. Alternatively, as you have more money to put aside, you may be able to build on it. A brand-new house with a design of your choice can be a thrilling experience. And with the land paid, the home loan could be significantly less and thus easier to repay.
Even if you have no intention to build on the land, don’t make the mistake we did and sell it prematurely. Let it sit, don’t worry about paying property taxes and similar fees on it, and in a decade or more it can’t help but be worth considerably more than what you paid for it. This is because land is a finite commodity and with increasing population needing housing, it will always go up in value.
Other, and smaller, types of investment can be something like solar roof panels or solar hot-water system that over time will pay for themselves by saving money on electricity. When paid off, they will actually generate a small profit – perhaps only $100 a month, but every little bit helps. The same can apply to roof insulation, which can save money on winter heating and summer cooling – besides being kind to the environment by saving resources.
So to sum up, wise investments (with the emphasis on wise) can help you get financially ahead. These can start with a small amount of regular savings or stock market investment. Real estate – a block of land, a flat or a house in a good location can be an excellent investment. The best way is to start regularly saving early in life and be patient. In due time, and without much effort, you will be rewarded.
