It’s no secret that money doesn’t grow on trees. Responsible citizens work hard to put food on the table, maintain a lifestyle and save for the future. Investing in a market gives your hard-earned money the opportunity to grow and offer long-term returns.
Investment behaviour differs based on experience. For example, advanced investors tend to base their return expectations on past performance, while novice investors tend to act on external events.
Ultimately, all investments are made with bias in mind. Statistics reveal that recency bias had the biggest impact on client bias around the world in 2020, at 35%. Followed closely by loss aversion (30%) and home bias (20%).
So, how do you choose the best investment for you?
Assessing investment options, along with their strengths and weaknesses, is a great place to start.
The stock market provides a place for individuals and institutional investors to buy and sell shares in a public venue. Share prices are set by supply and demand, and stocks represent ownership equity in a company. Investors can earn capital gains and dividends.
Investing in stocks gives people the opportunity to grow with the economy and stay ahead of inflation. It’s also easy to buy and sell stock as needed.
On the downside, the stock market introduces the risk of losing an entire portfolio. It takes time to research where to invest and the process can introduce emotional ups and downs as the stock market fluctuates.
Investing in commodities involves the purchase of raw, physical commodities, such as oil, grain and gold. Investors can also invest through the use of futures contracts, exchange-traded products (ETPs), and exchange-traded funds (ETFs).
Commodities offer exposure to different growth opportunities and the chance to diversify benefits. Investing in commodities also provides protection against inflation, as commodities benefit from the rising price of goods and services.
However, commodities are also highly volatile, more so than stocks and bonds. Also, commodities don’t offer income generation for investors.
Index investments aim to replicate the returns of a benchmark index (such as the S&P 500 Index). Investors use indices as a buy-and-hold strategy by purchasing component securities of an index. Alternatively, an investment can be made in an index mutual fund or an ETF that tracks the underlying index.
Investors choose indices because of the low risk and steady growth associated with index funds. In addition, indices are considered a low-cost investing option.
In the same breath, indices are monitored by policies and strategies which don’t leave much room for flexibility. An index fund isn’t necessarily the best investment option if you’re looking for big gains.
Cryptocurrencies are becoming an increasingly popular investment option, with a CNBC survey revealing that one in 10 people are currently invested in crypto. Investors can make money by mining virtual currency or selling their crypto at a profit.
Crypto offers several benefits, including asset trading and transactions and complete control over currencies. The blockchain offers transparency and 24/7 accessibility. There is also the potential for massive returns, even over a shorter time period.
Investors should be warned that crypto is a volatile, high-risk investment. Lost cryptocurrencies can’t be recovered, and the trade can present a steep learning curve for beginners.
Note: Please do not invest money or assets in the financial markets that you cannot afford to lose. This article should not be construed to be investment advice and is for information purposes only