The holidays are over, and a friend diligently saved most of his cash bonuses. Now, he’s asking me where he should invest the money. Particularly, he wants to know what are the best investments for 2020.
Instead of answering him, I decided to write this article because I know many of you would also be interested to know. Especially if it is one of your goals for the year to finally start investing.
Invest with a Goal in Mind
Whenever someone asks me where they should invest, I always asks them back what their financial goals are. Because that will largely dictate which investments are best for them.
For example, if your goal is to save for your retirement, then putting your money in a time deposit account is a bad idea. Because your money will lose its value over the years due to inflation.
The best place to invest for your retirement fund would be in the stock market or an equity fund. This investment can outpace inflation. And it can grow your money significantly if left alone for many years.
However, if your goal is to save for your wedding next year, then putting your money in a time deposit account, or any low-risk type of investment, becomes my recommended strategy.
That’s because if you invest your wedding fund in the stock market, then it’s possible to lose as much as 30% of its value due to the market’s volatility. And we don’t want that to happen.
So therefore, it’s important to first clearly define your investment goal. What are you saving up for? Why do you want to invest? And more importantly, when do you plan to use or spend the money?
People are always looking for new and exciting investments. But you need to be a financial expert, or someone very lucky, to be able to catch the first wave of a profitable investment opportunity.
I know a handful of people who made good money from Bitcoin and cryptocurrencies a few years back. Unfortunately, I also know dozens of people who lost money from catching this wave because of either fear or greed.
Meanwhile, there are many, which includes me, who are quietly making money and steadily growing our portfolio through traditional investments. Particularly, paper assets such as stocks, bonds, and investment funds.
These investments are not “new” and “exciting” but they do work. And their historical performance is all the proof you need to convince any investor that it’s never wrong to put your money in them. Thus, if you’re a beginner investor, I suggest that you first invest in these paper assets.
Low-risk, for near-term goals
- High-interest cash deposits, including time deposit accounts
- Short-term government bonds, or retail treasury bonds
- Low-risk investment funds, such as fixed income or money market funds
Moderate-risk, for medium-term goals
- Corporate bonds, including bond funds
- Balanced funds, typically offered as a mutual fund or a UITF (Unit Investment Trust Fund)
- Index funds, including ETFs or Exchange Traded Funds
High-risk, for long-term goals
- Long-term government bonds, with higher-than-inflation coupon rates
- Equity funds (mutual fund or UITF)
- Stock market, specifically shares of blue chip companies
If you want to invest on something new and unique, then be ready to do a lot of due diligence. Particularly, be sure that you understand what you’re investing on.
Some questions that you should ask:
- Does this company have all the proper licenses to solicit investments?
- How exactly will this investment grow my money?
- What are the risks involved in this investment?
Moreover, part of your research should be talking to previous and current investors and asking about their experience. If you can’t find anyone, then it would be prudent to simply avoid the investment.
Alternative investments that you can consider today:
- Government initiatives, such as pera, Modified Pag-Ibig, and SSS Peso Fund
- Crowdfunding investments, which usually fund agriculture-based businesses
- Real estate companies offering shared equity investment opportunities
- Managed investment services, which often invests in global stocks and currencies
It’s important to note government initiatives are relatively safe investments. Meanwhile, the others on the list are relatively high-risk. Be sure you understand how they work, before you invest on any of them.
There is one investment that guarantees good returns, and that’s investing on yourself.
”Invest on knowledge. Invest on your career. Invest on your talent. Invest on new skills. Make yourself better this year, and enjoy unlimited dividends for the rest of your life.
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