Investing vs. Saving money – what’s better for you?

Investing vs Saving money

Surprisingly, not everyone realizes that saving and investing money are two totally different financial strategies. Obviously, both have certain pros and cons, so we are going to take a closer look at each aspect.

Saving money means literally saving the actual value of the money you have. You may just store your cash (which is, of course, the least reasonable decision), or you may put your money on a bank account (savings account). Taking into consideration the yearly inflation rate, the interest you get on your savings could be “eaten” away by inflation. Still, at least, you will not lose the certain percent of your savings’ value, as the yearly interest will compensate the devaluation.

On the other hand, investing could increase your income significantly and make you financially secure and even wealthy by the time you are retired. Although, you will not be able to withdraw the money in case you will need it, you will know money is working. Anyway, if you are up to making some wise investments – find out what way of investing money would match your needs the best.

So, before making a big decision about investing – make sure you know all the pros and cons.

Saving money

Pros:

A savings account is, probably, the most traditional way to take care of your money. Indeed, saving money is a great way to keep your assets intact, having no risk of losing them. It’s reliable, it’s steady and it is predictable. You don’t have to have any specific knowledge. You have your full peace of mind without any fears or worrying.

You can withdraw the money from the account in case you will need them. Depending on the terms of your savings account Agreement, you may lose a certain percent of the interest, but still, your money is always available for withdrawal.

Saving money

Cons:

You may eventually lose some money if the inflation rate exceeds the interest rate of your savings bank account. You can not influence or vary the pace of your savings’ growth in any way.

When you have a savings account you stop monitoring the market for good investment opportunities so you may miss a really good one.

Investing money

Pros.

Investing is an active approach towards managing your financial situation. Basically, investing is the only way how wealthy people become that rich.
You may earn some additional income or multiply your money few times, depending on what type of investments you choose.

Cons.

Investing money

Risk, risk, and risk. Needless to say, but for the opportunity to earn more you will always pay with the risk of losing some money.
If you invest into, let’s say property – the market prices may plummet and you will lose a certain part of your money. If you invest into high-volatile assets, like foreign exchange market, you may lose everything at all!

Still, the most annoying drawback of investing is that money involved into the investment project is not available. Besides, there is always a risk of unprofessional (or even illegal) behavior of the individual or institution you have trusted your money (especially when it comes to the stock market or forex trading).

Ways to save the money

  1. You may just drop your money in safe deposit box you can find in any bank you prefer. Advantages are
    obvious – you have full access to your money at any time. Cons are plain as well – your money doesn’t
    grow, and, given the inflation, you lose every year a certain percentage of your savings.
  2. Open a special savings bank account. It’s really easy to maintain, besides, you will have an access to your
    money without limitations. Regular savings accounts offer very small interest rate which is usually about
    0,1%. Still, it’s better than nothing.

save the money

There are several types of savings accounts:

  • Regular Saving Accounts (easy sign-up, simple maintenance procedures)
  • Money Market Accounts (highly-liquid accounts, insured by FDIC)
  • Certificates of Deposits (account with the interest rate, where interest is paid regularly to the account holder)
  • Automatic Saving Plans (automatic money transferring (certain %) from regular checking account to automatic saving plans account). It helps to save money if the holder has a tendency to spend more than he wishes to, so account becomes an effective tool of personal financial discipline.

Ways to invest the money

  1. Stocks. You buy stocks, based on the expectation those stocks will go up in price. That could be long- or short-
    term investment. Beware of putting all money into one certain type of stocks.
    Read more about risks of investing in the stock market.
  2. Bonds. Fixed-income equities for people who prefer lower but stable growth of their money over risky and fast    income. Bonds may become a key element of your diverse investment portfolio – the core which brings    guaranteed income.
  3. Mutual Funds. Mutual funds let you acquire serious assets (usually equities) even if you have a small amount of money. Mutual funds let participants consolidate their money in order to buy a stock portfolio and share the profit from the mutual investments.
  4. Real estate, Property. Investing in property is a trending way to make your money work and grow. You buy property in order to rent it out or sell it later, when the market goes up.
  5. Gold, precious metals. Gold and other precious metals (silver, platinum) is a relatively safe way on investing money, as when the global crisis kicks in, gold always goes up.
  6. Start-ups. You invest into the newly appeared on the market company, which has a great commercial potential. The risks are massive, but the success could also surpass all your expectations. A little company may explode into the billion-dollar business within a year.
  7. Bitcoins. It’s an investment into the electronic currency which price could rise of fall, depending on several factors. Many people consider bitcoins as an investment field with high potential. The other side of it – it’s risky, as this digital currency is under no control or official regulations.
  8. Alternative investments. Futures, options, other “non-classical” financial tools, which are purposed to balance the whole investment portfolio. You can choose actually anything which is out of regular investment list.

It is always better to keep the healthy balance of risk and safety when it comes to money. If making significant income is not the priority for you, then put 80% of the money on a savings account and invest other 20% into something which potentially brings high returns. The modern world offers plenty opportunities for high-profitable investments, starting from 1 thousand dollars!

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Investing in Real Estate for everyone!

investing in real estate

Investing is the best way to make you financially secure and increase your savings’ value exponentially. The goal of investing in real estate is plain and simple: to have more money than you had initially, taking into account taxes, payments for maintenance, utility bills, etc.

Along with Real Estate, you may consider alternative ways to multiply your money, like investing in bitcoin. The more diverse your investment portfolio is, the more your money is protected against the risk of certain market collapse, leading to the loss of all your investments.

The diversity of Real Estate investments niches is impressive: living buildings, apartments, garages, storages, commercial real estate, etc. Since property normally does not decrease in price over time, it could be considered a reasonable, safe long-term investment with average to high return.

Keep in mind that Real Estate is not for “I’ll get rich quickly” type of mindset. It is a work which takes patience, routine, and wise winning strategy.
Before you dive deeper into understanding the market, you must know your 6 most important figures:

  • Cash flow (net income/debt financing payments).
  • Net income (income/expenses).
  • Return on investment (cash flow/investment).
  • Cash-on-cash return (cash flow/investment).
  • Cap rate (net income/property price).
  • Total ROI (total return/investment).

Pros and Cons of investing in Real Estate

Pros

In spite of being considered a somewhat risky type of investment, Real Estate is a great tool for hedging inflation. As you know, inflation “eats away” a certain percentage of your money’s value year by year. Unlike cash, a property increases in price in long term. So, even if you will not earn much on selling your property you will at least compensate your money devaluation.

investing in Real Estate

If you get a mortgage for buying, let’s say a house, and you will rent it out, the monthly income will cover your mortgage payments (ideally). After the mortgage is paid out, all the money you get from tenants paying for renting your house is your pure profit.

Real Estate market prices are relatively stable, except crisis periods. In long term, a property is one of the most reliable investments.

Cons.

Investing in real estate could be risky in case you are paying your mortgage and rely on monthly payments from your tenants. If the market goes down, rent prices go down too, so you will have to decrease the rent price while your mortgage payments will remain the same. To reduce the risk of your investments – read about low-risk investments with modest, yet stable returns.

How to make money on Real Estate like a pro!

make money on Real Estate

There are few ways how investors take benefits from putting the money into the real estate (or real estate related businesses). Depending on the type of investment you choose, the risks vary.

  1. Market’s value growth. You earn on a difference between an initial property’s cost (the money you’ve invested) and the price the market will offer over time. Your return is equal to the added value after tax. You may increase the value of your property by making good refurbishment and technical upgrades.
  2. Investment in Real Estate Company. You direct your investments into the real estate related company (or individual expert) who generates profit by buying and selling property. The difference they make and the commission they get is shared with the company and investors (or between a private expert and you as his investor).
  3. Income from a property for rental purposes. It is the most common purpose of investing money. Investments are purposed to generate regular cash flow income from renting the property out. Monthly payments from tenants must exceed (or at east be equal to) your maintenance expenses and (if any) mortgage payments.
  4. Ancillary revenue. It is an additional income within main real estate income. You let tenants use laundry equipment or other machines (for personal or business purposes) for the certain monthly payment. In a case of commercial property, you may lease out equipment within premises to get a bigger income. It could become a great source of income, turning your investments into the real business.

How to start

Real Estate Cycle

If you are serious about making considerable investments in property, find your local investors to join their community. They will show you their property and explain the reasons, pitfalls, and benefits of purchasing certain types of Real Estate in your area. Unlike Real Estate agencies and brokers who advertise everything which is beneficial for their business, real investors will give you a real picture.

  1. Take your investment as a business and make a good business plan. Make all calculations, including expected expenses for maintenance, utility bills, mortgage payments, etc. Make calculations of expected return, based on marketing data. Find and involve in writing your business plan someone who knows the market from inside.
  2. Since you’ve become an investor, bookkeeping must be on your daily radars. Learn how to do paperwork and make recordings regularly. If you invest in several Real Estate objects, hiring a professional accountant is recommended.
  3. Start with the smaller property, to understand all mechanisms of investing in Real Estate, and then go bigger. When you feel you get enough experience, don’t hesitate with buying a bigger property. Don’t be afraid to join the league of “big players” as larger assets normally rise in price faster so it brings returns sooner.
  4. Set individual retirement account. When you intend to invest in Real Estate using your own money (not borrowed), the best way to do it is using self-directed retirement account. There is a very important reason for that: using IRA allows you avoid your taxed money.

Secrets and tips of investing in Real Estate from professionals:

High return real estate investing

Investing in Real Estate can bring as high returns as stocks or other high-risk and high-yield investments. All you need is to get armed with tips, given by professional and experienced Real Estate investors.

  1. There is no “right time” or “perfect time” for investing in Real Estate. The market can go any direction at any time. Make a decision and don’t hesitate with making actions.
  2. Don’t get tempted by quick profit. Even if your property appreciates in good pace – don’t sell it sooner than you planned. Normally, there is a long-term uptrend for all types of Real Estate, but there are always ups and downs on the way. Don’t step off the course.
  3. Read a lot and attend your local property investors meetings. That is how you stay updated without spending days and nights following the market news on the Internet.
  4. Create a thorough financial plan with exact goals, like you would do it for investing in financial markets (stocks, commodities).Serious approach always pays off.
  5. Buy a property at a most motivated seller. When the seller really wants to sell it, he gives you a better price.
  6. It is always better to buy the worst building at the most popular location that the best house in the wrong area. For your future buyers or tenants, the reputation of the neighborhood is more important that other criteria. You can upgrade a bad house, but you can’t “upgrade” a bad location.
  7. Use universal 1% rule for Real Estate investments. It’s as simple as effective. If you are buying a property for $200K, your monthly income (rental) must be 200 000 x 1% = $2.000

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TOP – 5 investment tools and services for private investments!

investment tools

When it comes to investing money, the majority of individuals choose financial markets as one of the most profitable spheres. Of course, managing money requires professional skills and lots of specific knowledge. Nevertheless, you, as a private investor may track your investing processes, check portfolios, follow operations with equities and do efficient calculations with the help of technology.

Here we will make a review of the most efficient and easy to use online apps and financials tools which are purposed to make investors’ life easier! Such tools are especially helpful when it comes to investing in high-risk assets.

1. Personal Capital

This is, probably, the most famous and popular free Internet-based application for private investors. The application focuses on your investments, rather than on budgeting (like many other apps do). Just download and install on your tablet or Smartphone in few simple steps.

The investor has instant access to all accounts, including taxable and retirement ones. All transactions, fees, changes in assets allocation are tracked and shown at any time.

Personal Capital

The service combines two effective tools: professional financial adviser and a tracking application. You set the parameters you want to be tracked.

Clever and simple visual graphics allow seeing “big picture” and compare numbers within seconds.

Customized services are available for the minor fee.

2. Morningstar

It’s a powerful, professional financial tracker for all elements of investment portfolio whatever big and complex it is.

Upload your portfolio and instantly receive the full evaluation of investment costs and fee, investment performance, indexes comparison, detailed information on mutual funds portfolio performance, etc.

Morningstar

Morningstar enables an investor to make online real-time tracking of stocks, bonds, fees, and expenses as well as a status of each asset. Still, we’ve rated Morningstar #2 (after the Personal Capital app) because it does not have an option of synchronizing with investment account automatically. It is quite inconvenient as all elements of the portfolio must be added manually.

The basic settings of the app are free, but if you need an advanced set of tool you’ll be charged a membership fee.

3. Google Finance

Google has created a special web-based application for financial data and investment performance. It’s quite easy to track your investment portfolio. Watch and follow any stock you are interested in at any exchange. Easy to use and absolutely for free, this application offers a decent set of customized settings, but still, for the professional evaluations it’s not quite enough.

Google Finance

Previously Google Finance was available for Android but now you can only use its web version. Anyway, if you invest in low-risk assets and you don’t need to stay updated and informed every now and then, Google Finance may come in handy as an alternative for complex investment software.

4. SigFig

SigFid is a specified application which lets you focus solely on investing, without distracting you by numerous another settings. You track your brokerage account, asset management account and diversified income account at any convenient time almost for free (they charge you an annual commission of 0.25-0.5 percents).

SigFig

It takes less than a minute to set your personal portfolio tracking account and start following market ratings of assets you have in your portfolio. Enter the brokerage information and stay informed 24/7.

5. Betterment

betterment

Betterment is another remarkable tool for tracking ratings of every asset which is in your investment portfolio. It’s a brilliant alternative to expensive financial advisors who charge too high fees.

Betterment application automatically generates financial advice according to the market situation. Just pick the asset you are interested in and stay advised any time.

If you set your investment goals, Betterment helps you achieve them by guiding you through your current earnings and letting you know how much is left to your objective (and what are the chances of reaching the certain goal). Easy to install and use, so it’s a perfect tool for beginners.

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Top high-yield investments for beginners and pros!

top high yield investment

It’s time to redirect your attention from playing safe and struggling with getting pretty low interest rates to some really profitable assets which may multiply your money quickly!

If your investing ambitions are high enough we presume you are fine about taking certain level of risk, which is obviously higher than during investing in safe assets (like T-bills, CD, savings account, etc.).

There are few ways of investing the money for short and long term in order to get a really fat return. Needless to say but you should always follow money management rules. First and foremost rule is never ever put all the money into high-risk investments. At least one-third of your money should be safe in case your high-risk investments fail. Learn more about wise money management in investing to keep your finances protected while making them grow.

Real Estate Investment Trusts

Real Estate Investment Trusts

REITs (Real Estate Investment Trusts) invest in Real Estate and they are traded on a stock exchange just like any other stocks. What makes REITs attractive for individual investors is that Trusts provide them with an opportunity to invest in expensive commercial property, gathering money from the pull of investors. Due to special tax regulations, Real Estate Investment Trusts deliver investors really high yield along with high liquidity of investments.

There is also an option to invest in property individually, but it will require way larger investments while there is always a risk of property’s depreciation.

Stocks

Stocks

Investing in stocks is the most common way wealthy people use to double the money. Stocks are traded in the stock exchange and due to price’s fluctuation investor may earn or lose. When the Company (which stocks investor has bought for his portfolio) announces big deals, acquisitions, mergers or innovations, price may jump significantly, bringing terrific profit. Investing in stocks of big companies (like Microsoft or IBM) is great for long terms, as stocks of such giants is less likely to drop, but instead an investor will see a slow, gradual yet stable uptrend.

Buying stocks of companies which are the newbie on the market is too risky, but yields may be explosive as well (especially in tech and pharmaceutical sector).

Corporate Bonds (High-Yield Bonds)

Corporate Bonds

Unlike government bonds which offer a very low yield, some types of corporate bonds are purposed to bring high income at the cost of a high probability of default. Companies, which show stable financial performance, are never run out of investors, so they issue corporate bonds with the low interest rate, but companies who don’t have good credit ratings need to attract investors by higher-yields. The correlation is direct: the higher yields are offered the higher the risk of investments’ fault.

High-yield corporate bonds are sometimes compared to roulette; nevertheless, if you are after fat profits, you will have to face risks anyway.

Master Limited Partnerships (MLP)

Master Limited Partnerships

Master Limited Partnerships are somewhat similar to Mutual Funds, as investors buy pieces of bigger investment or businesses (units), in order to share the income later.

Unlike mutual funds where money is invested into financial markets, MLP operates certain business ventures and get the profit for it. Receiving cash flow from business operations MLP share it with its partners (investors), according to the amount of investment being made by each investor (unit holders). The risk lies in a probability of business failure or temporary operational loss (or even company’s bankruptcy). Read more about investing in Master Limited Partnerships with high yields.

Options

Options

Options are among high-risk and potentially high-yield investments which have certain specificity. Options are considered a very risky financial tool only if you are trading them with speculative purposes. Surprisingly, options are often used as a way of hedging risks while trading stocks or commodities. There are “put” and “call” options which mean you, as an investor, have a right (not an obligation) to buy or sell the asset before or on a determined date. The concept is simple, if the option you’ve bought shows an appreciation of the price of the asset, you will get a profit. There can be stock options, precious metals, and currency options, etc.

Initial Public Offerings (IPO)

Initial Public Offerings

When the company goes to an open market and a stock exchange, they undergo a procedure called Initial Public Offering, which means their stocks are offered on the exchange for the first time.

It’s often unpredictable how the market will react on the IPO of a certain company, so investing in IPO is risky. Still, the potential profit may exceed all expectations, as initially stocks are offered (normally) at a moderate price while the price may jump up crazily in just a few months after. Needless to say, but the price may plunge as well, so the disappointment is highly probable.

Foreign Exchange Trading

Foreign Exchange Trading

Foreign Exchange (or Forex) is, probably, the riskiest way of investing, but results may triple your money just in hours. Usually, forex trading is all about speculative buys and sells, due to currency prices being highly volatile. It’s an adrenaline-infused investment and the risks are enormous, especially during the periods of the most intense prices fluctuations. Read more about investing in foreign exchange market in comparison with investing in real estate, to be armed with a solid knowledge.

Mutual Funds

Mutual Funds gather investments from individuals and companies in order to make beneficial deals (usually on financial markets). Earned profits are shared between investors according to the amount of investments each participant has made.

Investment portfolios are ruled by the managers – financial experts hired by mutual funds. Managers earn money for the investors (getting fees for this), taking decisions about directing the money into certain deals. Mutual Funds are considered moderate risks investments with potentially high returns.

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The best ways to invest the money, according to your goals!

ways to invest

There are numerous ways to invest money and each one implies a certain level of risk. Depending on your income appetite and investing ambitions, you may be recommended a certain type of investments. If you want to form a complex investment portfolio with the various investment tools to diversify risks – you might find our recommendations extra helpful.

We already wrote about high-yields investment and low-risk investment, so in order to get the full picture, you are advised to read the articles first.

Here is the brief guide on choosing the type of investment which matches your personal preferences and willingness to take risks. Each way has pros and cons and your investor’s task is to determine whether the pros outweigh the cons of certain types of investments you are going to choose.

You might also find useful one of these tools for managing and following your investments. Each of those apps is purposed to keep you updated and help with effective investment goals and financial performance calculations.

1. You prefer safe investments with low, yet stable profit

safe investments

Low-risk or safe investments are the best choice if you want to keep your money safe, rather than to get the profit. The most common low-risk options are:

  • Savings accounts

These are the bank accounts with the interest rate about 0,5% a year. The interest rate is so low that it is not enough to compensate yearly inflation rate; but on the other hand, it’s the safest way to take care of your money.

  • Certificate of Deposits

Issued by the bank, a certificate of deposit makes one of the safest investment vehicles with the low interest rate and fixed date of final payment.

  • Treasury Bills (T-bills)

Treasury bills are papers, issued by the government and therefore all risks are covered by the government. You get a certain interest rate in exchange for your money used by the government.

  • Dividend-paying stocks

Unlike trading on a stock exchange, your revenue doesn’t depend on stock price’s fluctuation. You just get your tiny dividends without risking anything.

2. You are willing to take a risk in order to get a high reward

Low risk and hight risk

High-yield investments may bring you to the top of financial independence; still, you have to realize the level and the nature of risks you are about to take.

  • Stocks

Stocks are papers issued by companies and traded on stock exchange. When stocks appreciate you earn when they prop you lose. It’s important to sell the stocks at their peak to get a maximum profit.

  • Options

Options are the right to buy or sell the financial vehicle before or on the certain date, defined in the contract. It’s the same risky and the same rewarding as stocks.

  • Initial Public Offerings

It’s the first stocks offering to the market from the company which wants to be traded at stock exchange.

The initial price of stocks is low, so the profit may be significant (as well as a loss).

  • Mutual Funds

Your investment becomes a part of the bigger investment with a further profit sharing among all investors (can be thousands).

3. You have a small amount to invest in short-term

types of short term investments

Having a small amount to invest does not prevent you from getting a good profit, yet risks are still proportional to your income expectations.

  • Stocks

Trading cheap stocks is a most common option for short term investing. Besides, some banks offer speculative stock trading with leverage 1/10 or even 1/100.

  • Master Limited Partnerships

You buy a participation in the certain business venture and get the profit, according to the amount you’ve invested. If the company undergoes crisis or go broke you share the loss as well.

  • Trading with leverage

Speculative trading, especially foreign exchange currency trading with leverage gives you an opportunity to trade the amount bigger than the actual amount by 100 times, while the profit is entirely yours. Risks are extremely high, but the potential reward is quick.

  • Mutual Funds

You participate in collective investment and share the profit or loss with other participants.

4. You consider long-term investments with reliable income and moderate risks

long-term investment

Long-term investing takes a thorough approach as there is no place for quick or occasional profits and unreasonable risks. Usually, long-term investors opt for moderate yields and tend to avoid risks as significant amounts of money are involved.

  • Real Estate

Real estate is often considered as an alternative investment. Buying real estate in order to rent it out and get a monthly income is great investment with relatively low risk.

  • Corporate Bonds

Bonds of big market players are a good investment with the moderate interest rate (fixed).
The only risks are if the company goes bust.

  • Cash Value Insurance

Universal Live Insurance can be considered as a way of investing money, according to the terms of a
policy.

  • Reliable stocks (Blue chips)

Stocks of big companies (like IBM, General Motors, Microsoft) are not as risky as stocks of other market players as those giants are not so easily influenced by the market moods. Blue chips are expensive stocks but reliable and considered the main investment asset in serious long-term portfolios.

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Investing in Gold for dummies

Gold coins of numismatic value

Gold is a universal currency which worth will never drop. Gold is, probably, the safest asset you can acquire for a long-term investment strategy. Its price goes up even when the rest of financial tools depreciate. In a time of global financial crisis, gold’s value stays intact which make it extra attractive for investors to buy.

When it comes to speculative gold trading or short-term gold investments, it may not be so profitable due to gold’s low volatility. Many investors and professional investment funds use Gold as a balancing asset, making the whole portfolio less risky.

Whatever the amount of money you decide to invest in Gold you will find your best option among several types of gold investments.

Investing in Bars and Bullion coins

For the minor premiums, your will get investor-grade bullion coins which price is equal (almost 100%) of the physical Gold price on the market. Legally owning bars and bullion coins allows you as an investor bring stable and strong asset in your portfolio, especially if the portfolio consists mainly of high-risk assets such as shares, currency futures, etc.

Bars and Bullion coins

Buying physical Gold

It’s a great tool to preserve wealth as physical gold will come in handy in every life situation and every financial hardship. Don’t trade it, just buy and keep. Gold will make an excellent solid foundation of the portfolio with high-risk and high-volatile assets.

Gold coins of numismatic value

Buying gold coins of numismatic value increases the overall value of the investment as you acquire not only precious metal but only item of the cultural and historical matter.

Gold coins of numismatic value

E-gold

Electronic gold or e-gold is widely used by users who are used to make electronic transactions, so e-gold becomes a highly reliable equivalent or physical gold converted into digital currency. Like every other currency, its price may go up and down so traders and private investors may earn the profit on such swings.

Paper Gold

Investing in paper gold means investing in gold mining companies (buying shares of such companies) who show successful financial track record or going to explore new gold deposits. Obviously, if the company you’ve invested in finds new gold deposit and starts exploring it, its shares appreciate on the stock exchange so investor earns the profit.

Investing in paper gold

Trading Gold Futures

Gold futures is a very popular investment (speculative as well) tool among private traders and investors. Buying a gold Future at the current price (spot market’s price at the current moment) an investor hopes the gold’s price will rise so he will be delivered his Gold at the lower price he’s paid earlier. Gold futures (and futures in generally) are often used as a hedging element.

Gold ETFs

These are Gold exchange-traded funds which follow the gold prices solely. Read here in detail about investing in Gold ETF’s and find the list of TOP-5 Gold ETF’s for investing in the 2017 year.

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Plain and simple introduction to investing money

basic investment

Are you pursuing the real financial freedom? There is no better way to multiply your money than making smart investments. It doesn’t matter whether you have a thousand or a million dollars to invest, the rules are the same and we are going to explain them in plain words.

As they say: no pain – no gain. The same is fair for investing, as there is no such thing as overnight financial success: investing requires analysis, thorough work and pretty good knowledge of investing rules. Before making decisions about your money, make sure you clearly realize what the risks of the venture are and what rewards you may expect in short and long terms.

If you are not sure what’s best for you – savings or investing – read here a brilliant and simple explanation. There you will find a brief description of main investment’s terms, like liquidity, asset allocation, mutual funds, etc.

Here are your 7 golden rules when it comes to investments:

 investments

  1. Don’t let anyone, whether it’s a trustworthy bank or well-known investments expert put your money into the field you know nothing about. You have to understand at least the basics of the sphere and the schemes it works on.
  2. Don’t fall for quick a high profit. If it sounds too good to be true – it’s highly probably a fraud. This principle is the key one which legendary Warren Buffet uses. Say “no” to overly attractive promises.
  3. Know the real picture. Evaluate the current value and the potential value of what you are investing into.
  4. Don’t invest the money into high-risk assets if you are not ready to lose that amount. First, make enough savings which are steady and always within reach. In case you will lose your investments you will not go broke and you will still be able to pay for the lifestyle you are used to.
  5. Differentiate your investments. Remember the saying about not putting all eggs in one basket? It was actually said about investments as if the certain venture goes bust you will not lose all you money.
  6. Never borrow the money with the purpose to invest them. Of course, this advice is only for beginners, as professional and experienced investors use borrowed money very often.
  7. Don’t invest the big amount of money in long-terms projects, especially if that money will not be available for withdrawal in case of an urgent need. Needless to say, but if you are a beginner in investing, you better start with the low-risk investments. Read here about ways of investing money with the lowest risk.

There are several main fields where private individuals invest their money. Here is the brief description.

Bonds

Bonds are safe, fixed-income investment with a relatively low return. It’s a great option for beginners and those who are not willing to risk their money.

Bonds

Stocks and Mutual funds

Stocks are highly volatile financial assets so it is considered a high-risk (and potentially high-yield) investment. Mutual funds allow many individuals with relatively small amounts of money cooperate together and buy a significant amount of equities in order to share the return. Mutual funds are managed by professional financial market participants, so it’s vital to choose the trustworthy fund with an excellent reputation.

Real estate (Property investment)

This is quite simple yet still risky way to invest the money. You can invest your own or borrowed money to buy the property in order to rent it out. It’s important to evaluate the market, whether it’s going to go up or down in a long term. If the market will go down and real estate will drop in prices after you’ve made your investments – you will lose the money. Besides, real estate is not a highly liquid asset as you will not be able to sell it fast and get your money as soon as you need it.

Property investment

Startups

This is a very risky type of investments as you are investing the money into the company which has nothing but a great idea and (hopefully) great commercial potential. In a case of success, the returns can be mind-blowing. The loss can be disastrous as well if the company go bust.

Commodities, including gold, platinum

When you are investing in precious metals you hope the price of it will go up and you will get your return. This type of investments is better to be managed by professionals, as you might need to know a lot about commodities and macroeconomics to make wise decisions.

Alternative investing

Alternative investing means any type of investment which is out of traditional types of investments (stocks, metals, bonds, etc.) It can be bitcoins, antiquaries, and an art – anything which appeals to your investing interests.

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TOP-9 most successful investments in history

World investments history has a numerous number of remarkably successful stories. There are thousands of examples where the single choice made at the right moment has lead to results that exceeded all possible expectations. Still, there are quite a few outstanding cases worth of our attention due to the biggest returns these investments brought to people.  

Rises and falls, fantastic profits and dramatic losses – all this is the part of the exciting and risky journey into the battlefield of money making. Some investors and founders of the most successful startups have become real stars of financial markets. But not everyone knows what lies underneath of their success and what a thorny path they had to take in order to reach the goals.

Let’s take a look at the loudest stories of success resulted from wise and timely investments.

1. Bitcoin in the 2011 year

Bitcoin

We have placed crypto currency Bitcoin in the very first place of our TOP-9 for a reason. In the beginning of its rally, the price of bitcoin was about 0.05 dollars and only very few believed it has a potential to grow. If you would have bought some bitcoins that time you would have your profit jumped to the mind-blowing level of 2,253,540% by now.

Bitcoin as an investment vehicle stands out of a crowd as this is a completely virtual currency with no real underlying asset. It could be either bought on the exchange or “mined” through the very time-consuming process with the computers involvement. Bitcoin has all properties of currency (you can make online payments) but it allows the owner to keep full privacy.

2. Dow Jones index in 1932 year

Dow Jones index

Dow Jones index reflects the general “mood” of the stock market and the sentiment of all investors and traders. There were no worse times for stock and for Dow Jones index than the 1932 year, the peak of the Depression in the USA. Still, some investors had a feeling that the wind will change its direction and so they have invested in the Dow Jones. Now, when the index is on all times highs, the profit of those who have invested in Dow Jones would show 39,565% level.

3. Gold in the 1970 year

Gold

As you may know, the gold standard was cancelled in the 1971 year, and right before it the price of gold was about 36 U.S dollars per ounce. After the golden standard cancellation, the precious metal has sky-rocketed to unimaginable heights. Thus, if you would have bought gold in the 1970 and hold it until recent years, you would have got about 3500% of profit after selling it. Moreover, if you were lucky enough to sell gold on its all-times high, your profit would be not less than 5000%. Impressive, isn’t it?   

4. McDonald’s in the 1961 year

McDonald’s

The famous investor Ray Kroc have decided to make a huge (on a post-war America’s scale) investment in McDonald’s that was run by two brothers these times. By investing 2.7 million dollars Kroc has turned this amount into staggering 500 million dollars by the 1984 year. The ROI of his investment is x54 and if he was still alive his fortune would have exceeded one billion dollars.

5. Domain names

Domain names

On the very beginning of the global web development, there were thousands of available domain names at ridiculously low price. Currently, some of them cost millions of dollars and there are lots of companies and private investors who are ready to pay that price. These are the names made of basic words, like books.com, cars.com, etc. For example, the domain name of the website https://www.investing.com costs about 4 million dollars, while its initial price was just a few dollars. Unfortunately, today it’s almost impossible to invest in domain names as nearly all names are either taken or unavailable.

6. Apple (IPO)

Apple

The debut of the Apple stocks was in 1980 and since that time the Company has witnessed many ups and downs reflected in the stocks’ price. The Company has started its journey on the stock exchange with the modest price of 28.75$ per share. Compare this number with its highest price of 702.1$ and you’ll find out that profit is up almost 2000%! That’s a staggering performance!

Now, Apple is among “blue chip” stocks that mean it is amongst most reliable, profitable and economy-influencing stocks.

7. eBay in the 1995 year

eBay

In the late nineties, the company named “Benchmark Capital” founded by four partners have made the initial bid on Internet auction eBay by investing 6.7 million dollars. The investment and the commercial “sixth sense” paid off when eBay skyrocketed massively in the 1999 year, bringing Benchmark Capital unimaginable profit of 5 billion dollars (the equivalent of 6.8 billion today).

8. Treasures in the 2008 year

Treasures

That was quite a remarkable time with a chaos on the market. Almost all investment vehicles and stocks, in particular, were showing the downtrend, while treasures have risen by 30% within just a few months. Thus, T-bills brought incredible profits to investors who were wise enough to buy treasures at the right moment.

9. Facebook in the 2005 year

Facebook

The founder of a super popular electronic payment system “PayPal” Peter Thiel was able to foresee the huge potential of Facebook in 2005 year. That was the time of another social net “My Space” – the most popular platform, and yet, Peter Thiel invested 500 000$ in Facebook by buying 25 million shares. In 7 years he has sold the major part of shares (80%) for 400 million dollars. That is a remarkably successful investment with ROI (Return on Investment) = 800.

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Benefits of investing in distressed Companies

investment

Not only big hedge funds love to invest in companies which are in financial troubles, but also lots of experienced individual investors often benefit from investing in distressed businesses. At first glance, it does not make sense to approach dying companies with investments, but in fact, investing in debt can become a most rewarding move you have ever made. How is that?

It is a law of wealth in the financial world: the higher the risk the bigger the potential profit and vice versa. Distressed companies like any other companies issue securities like stocks and bonds. We are interested in bonds, which financially sick companies offer at an extremely low price. Let us explain in detail why this type of investment is a large piece of a delicious money pie.

Why is that beneficial?

Companies, who are on the edge of bankruptcy suffer an unbearable debt pressure and therefore desperately seek for financing. No lenders want to take such huge risk and lend money to drowning business. The only way to attract investors is to issue bonds and sell it at an extremely low price. And the question remains: even at a very low price who on Earth would buy bonds of a Company who has serious chances to collapse in the nearest future?
Here is the concept: a distressed company is not dead yet, and so, there are tiny chances it will recover and get back on track. Logically, the Company’s securities will jump up in price and here is where the profit lies.

Companies

An investor who buys distressed debt should realize clearly that “it’s all or nothing” kind of a deal and the risk is really significant. The possibility of such quick and huge profit attracts corporate investors mostly. Still, private investors can join the hedge fund with a significant part of the distressed debt in a portfolio for a chance to hit the jackpot. There are hedge funds with several divisions who work solely on searching for attractive distressed debt to invest in. The task of an Investor is to minimize the chances of getting into the Company which will really go bust after all. Some think that distressed debt backed by collateral guarantees the non-bankrupt status. It’s a big mistake which may cost you everything and here is why (see below).

What about collateralized debt?

There is a good lesson for all investors out there who are sure that collateralized debt is a protection against losing money. In times of the world economic crisis that took place a decade ago, collaterals in form of property (commercial and residential Real Estate) plunged in price dramatically.

debt

That means, even a collateralized debt imposes a threat for an investor. When the collateral decreases in value, nothing protects investor’s money. If the distressed Company finally collapses, bonds devaluate to zero.

Is the risk worth the reward?

It’s always a matter of own risk tolerance and financial capability which allows you to stay afloat if the worst scenario will eventually happen. Putting money into the distressed debt securities is one of the riskiest types of investing and there are many examples of failed investment hopes and wiped out money. According to Money Management concept, an investor must not invest more than 15% of his money in such risky assets.

Still, some investors find the potential reward attractive enough to risk.
investment

There are three ways an investor can get securities of a distressed company:

  • Hedge Funds (hedge funds buy bonds directly from mutual funds which are not allowed to keep in their portfolios devaluated securities);
  • Bond market. The bond market is a great place to buy bonds directly, without mediators.
  • Directly at the distressed Company (available for Corporate Investors).

Still, the best and most efficient way for an individual investor to access the distressed debt market (especially if you are having not enough money for full-size securities) is exchange-traded bonds. This option allows buying bonds partially instead of full-size bonds packages. For example, if bonds are traded at 900 dollars, a private investor can buy a fraction of it at $50 or even cheaper. This way of making portfolios with fractions of real securities is very popular in micro-investing as it brings the same outcome as investing in full-size stocks, bonds, and derivatives.

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Variable Annuity Investing

annuity

Amongst all types of investing and all variety of investing strategies, a variable annuity investing stands out of a crowd due to several reasons and many investors prefer getting into it because it definitely brings some advantages. Let’s take a closer look at this type of investing, so you will be able to take advantage of it.

Understanding Variable Annuity

Being a sort of a mix between an Insurance and Investment Contract, Variable Annuity policy offers lifetime payments to an investor. The only difference between investing on your own is that it’s not you but the Company who decides what vehicle your money will be invested in.

Why many investors take variable annuity investment options as a sort of insurance against the unfavorable behavior of their main assets? The reason is plain and simple. Let’s say you have a certain pool of vehicles in your portfolio with the fixed annuity. Everything is great as long as the economic situation is predictable and the inflation rate is relatively stable and low.

annuity

But what if economic environment changes and you start losing your money because your fixed annuity vehicles do not bring you the planned income, just because the value of that vehicles decrease of the value of the money itself goes does (inflation)?

The solution is to diversify the portfolio with stocks and bonds with the variable annuity that offer much higher interest rate. These instruments’ interest rate (and thus, your income) is linked to a certain index, rather than to a fixed %. If the index shows positive behavior, the profit of an investor goes up, as variable annuity rise. On the other hand, if circumstances play not in investor’s favor, annuities will be decreased.

Outpace the inflation with the variable annuity

Variable annuity investing was designed exactly to outpace the yearly inflation rate that may wipe out the profit that is brought by the fixed-annuity vehicles with relatively low % of yield. For this advantage, an investor pays with the increased risk and instability of variable annuity vehicles.

inflation
The variable annuity investing could be considered as an element of retirement plan which brings advantages of both Insurance and Investing: you get your regular guaranteed payments and in case of death the death benefits will be paid to the family (the amount cannot be less than an initial investment made, regardless of the investment performance of the Company).

The inconvenience is that annuities could be withdrawn only once a year and you cannot influence the investment decision and strategy the Company applies. The benefit is that payments are made during the lifetime of a policyholder regardless of the time period.

Accumulation and payout phases

payout

During an accumulation phase, an investor makes payments to allocate his funds within certain vehicles – bonds and stocks. Just like with investing in a mutual fund, investor’s money could be grown or lost (partially) depending on the Company’s performance.

During a payout phase, an investor gets paid in accordance with investing results of the Company. Even in a case of the worst investment scenario, a person gets the guaranteed minimum yield (typically 3% yearly).

Tax-deferred investment

Tax-deferred investment

Another beneficial aspect of Variable Annuity Investing is that it goes via special, tax-deferred subaccount. That doesn’t mean that the payments received by the policyholder are tax-free, but instead of paying taxes for the period the money was earned, an individual is allowed to pay taxes later in the future when his income is grown enough for making tax payments painless for the budget.

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