What is the Best Way to Invest Money in 2021?
Making wise investment choices is the key to wealth creation and ensuring that your future also continues to be prosperous. Just burning your paycheck up every month isn’t the right way to go. However, living under extreme austerity in order to just save money is also not the correct thing to do. In this post, we will look at the best ways for you to invest your money. Let’s get started.
Best Ways to Invest Money in 2021
Risk vs Return
Before we start going through the different ways for people to invest money, let’s get a clearer understanding of the concept of risk vs return. In investment terms, risk is the probability of losing money whenever you make any investment. Return is the amount of money you earn by investing money in an investment tool. Based on risk and returns, investments can be broadly split into three kinds:
- High Risk High Returns
- Low Risk Low Return
- Medium Risk Medium Return.
If you take high risk your returns will be high. If you take low risk your returns will be low. and if you take medium risk your risk will be medium.
Due to this concept, some people develop a fear of losing money and shy away from investment. However, you shouldn’t do that. With the right research and guidance, you can invest your money with ease and earn good money, Now let’s take a look at some of the best ways to invest money:
It is a safe option. Many people prefer this option. But it is a low risk and low returns investment.
Every bank has some scheme regarding FD as they are also doing business. When you invest in a fixed deposit, you become an investor for that bank for your FD’s tenure. The bank will keep the money for that fixed tenure and reinvest it. At the end of your tenure, you will get some returns. This is how an FD works. The returns from FD are higher than your savings account. And longer the tenure longer the return.
This is another nice way to invest money. The value of gold goes up with time. Gold prices can change drastically, both positively and negatively. Here are the advantages of investing in gold:
- It is a medium risk medium return investment.
- It is a safe and simple investment as there is not much paperwork involved.
Here are the disadvantages:
- Hard to check for authenticity. It’s not easy for everyone to know if you’ve got actual gold or counterfeit material.
- Storage is difficult. Once you purchase actual gold, you must also arrange for its safekeeping, which can be a bit tricky.
This is a high risk high return investment. It is also a long term investment. If you buy a piece of real estate for $100,000, don’t expect it to be worth $1 million within a year. There are various factors involved such as legal factors. The seller can sell you an illegal property. If that happens to be the case, you’d have wasted your $100,000. Making it quite risky.
It is a low risk investment with low to medium returns. It’s quite safe as a way of investing money. When you purchase Government bonds you become an investor for the government and that money can be used to fund infrastructure projects in the country. By purchasing Government bonds, you essentially give your money to the government so that it can use it to finance the country’s infrastructure and reward you with fixed returns in the end.
Investing in the stock market is of the high risk high returns kind. When you buy a stock of a certain company, you essentially give that company some money to use. With that money, these companies will fund their operation and reward investors with some part of the company’s profits. After you invest in the share and the price of the share increases, it means that the company is performing well and your investment is also performing well consequently. There is a downside to investing in stock markets as well. You can lose your money as easily as you make it. There is a somewhat steep learning curve if you want to invest in the stock market and start earning good returns right away. You need to stay abreast with current affairs, and have a good understanding of a stock market’s machinations. There are so many factors which you need to learn well. That also adds to the high risk high reward nature of stock market investments.
Mutual funds are often described as professionally managed investment schemes that collect money from various investors then invest it in diversified holdings. Mutual funds invest within a wide selection of securities like stocks, bonds, debt instruments and far more. Each scheme features a defined NAV (Net Asset Value) which springs after dividing the entire investment of the mutual fund by the amount of investors. Mutual funds can fall into various categories, ranging from low risk low return to high risk high return. Investors earn returns from mutual funds in three ways. They are dividends, capital gains, sale of fund shares.
So those were some of the best ways for you to invest money in 2021. You should abstain from investing all your money in just one place and spread it across different tools. That is the only smart and savvy way to invest your money without the risk of losing it all in a snap. Invest smartly, safely and responsibly.