How can you make your money work for you and grow over time?
You could invest your money in different investment types.
Sounds simple, but is it?
The stock market has always been a high-risk, high-return investment vehicle but Goldman Sachs does not expect investors to make significant gains from stocks in 2019. Moreover, with fewer companies coming out with IPOs, it may take considerable research to identify lucrative businesses to invest in.
The good news is, you don’t have to restrict yourself to stocks. There are tons of other investment options to choose from - each with their benefits and drawbacks.
In this article, we’ll cover a few investment vehicles that can be a viable option in 2019.
For each investment type, we will cover:
Stocks or shares are mainly small pieces of a company that is up for sale to the public. When you purchase a company’s stock, you buy a small part of the company.
Investors make money when the value of their stock goes up. For example, when the price of stock purchased at $25/share increases to $40/share, and you sell it at that stage, you make a profit.
Some companies also pay dividends to their stockholders. A dividend is a regular distribution of the company’s earnings to its investors on a quarterly or annual basis.
The stock market can be very volatile. Various factors influence the rate at which the price of a stock increases or decreases. You could make a huge windfall or lose all your hard earned money. It’s hard even for experienced financial analysts to predict the price of stocks. That’s why stocks are generally viewed as one of the riskier investment types in your portfolio.
Companies and government bodies often issue bonds - which are essentially loans that they take from investors. By purchasing a bond, you’re allowing the bond issuer to borrow a specific amount of money and pay you back with interest.
Bonds are safer than stocks. However, that also means they offer lower returns. You’ll be receiving your bond value plus interest earned upon maturity. However, the return rate here is higher than most bank term deposits - making it a more lucrative option.
The biggest risk with bonds is that the issuer could default on the loan. To protect yourself against this, you can invest in low-risk investments like U.S Government bonds that are backed by the “full faith and credit” of the United States (these have the lowest return rate upon maturity.) The next safest option is state and city government bonds followed by company bonds (these have the highest return rate upon maturity.)
Mutual funds allow you to deposit funds in different securities like stocks, bonds and other financial assets to build your portfolio. A mutual fund portfolio consists of shares or bonds of a number of companies handpicked by financial analysts. Mutual funds pool your investments with that of other investors and employ a fund manager so that it’s actively managed your behalf.
As mutual funds invest in stocks and bonds, you’ll generate revenue in the same way as when you directly invested in the bond or stock market. Stock appreciation, dividends and bond interest are all pooled together and distributed evenly among the mutual fund investors.
However, you will have to pay expenses (annual fees) to be part of a mutual fund.
The risk of a mutual fund depends on the riskiness of the investments that are part of the fund. Like stocks, they can be volatile, and there’s no guarantee that you’ll always make a handsome profit. However, since you have a fund manager who takes care of risk analysis and asset allocation, these investment types are less riskier than buying an individual asset like stocks or bonds. Make sure you read the prospectus correctly to get an in-depth understanding of the risks.
An ETF holds multiple underlying financial assets like stocks, commodities, bonds that track an underlying index. For instance, the SPDR S&P 500 ETF (SPY), tracks the S&P 500 Index. ETFs are traded on an exchange like stocks. Since ETF shares are bought and sold on the market, their prices can change throughout the trading day.
ETFs are different from mutual funds, which trade only once per day after the stock market closes.
Just like stocks, the way to make money with ETFs is to buy cheap and sell high. You hope the ETF goes up in value as the day progresses and sell when you feel you’ve made a sufficiently large profit.
There’s no guarantee that the value of your ETF will go up. As it’s traded on the stock exchange - which can be volatile - it’s hard to predict price movements.
An alternative investment is a financial asset that doesn’t fall into the conventional investment categories of stocks or bonds. An alternative investment can be pretty much anything - real estate, hedge funds, private equity, etc.
Some of the most popular alternative investments are:
Alternative assets cover a range of instruments like commodities, real estate and even angel investing, so your earnings or returns depend on the types of assets you have included in your portfolio.
For example, real estate investments bank on appreciation in land prices to achieve significant gains. You can even earn a monthly rental from your property. Private equity pays similarly to stocks - where your share becomes more valuable with time. Alternative investments are also popular with people who own self-directed individual retirement accounts.
As alternative investments are so diverse, there’s a lot you need to look out for before investing. Each type of alternative investment comes with its own set of precautions and rules. Some instruments are also complex, making due diligence more challenging.
Trying to keep up with all this on your own while managing the complicated process and arduous paperwork involved when investing in alternative assets can be tricky.
This is where a custodian like Alto can come handy.
Alto is a facilitator that makes it quick, simple and affordable to invest in alternative assets.
We take away the headaches, paper cuts and frustration out of alternative investing so you can concentrate on diversifying your retirement portfolios.
With Alto’s Alternative IRA™, you can directly invest your 401ks or IRA savings in early-stage startups, digital assets, real estate, loans and more through our investment partner platforms like AngelList, Yieldstreet and more. Or, discover your own direct investment opportunities. If you discover an opportunity outside of one of these Platform Partners, you can also use your AltoIRA to invest directly.
The best part? Alto’s simple online interface allows you to invest and manage a diversified portfolio with incredible ease.
Investment is a personal choice. The right type of investment depends on your financial objectives. For example, when working with retirement accounts, you’d look at tax saving high yield growth investments that come with a handsome annuity.
However, since financial matters can get technical and can entail a lot of paperwork, it’s always a good idea to engage with investment companies and custodians before taking any financial decisions.
If you want to diversify your retirement savings with investments in startups, growth companies, real estate, and other alternative assets, get started here.
What do institutional investors invest in? Alternative assets. They are a growing part of their diverse portfolio and are willing to take the risk.
Alto had its first Covid period board meeting last week. Like many companies, we considered our strategy in light of the new world order.Our strategy -- to provide affordable access to alternative investment opportunities for everyone – remains unchanged.