Trying to find the right investment or group of investments is like walking into a marketplace on a weekend: every vendor hollering that their wares are the best. While many brokers and agents are fully up-front, the less-scrupulous prowl the playing field as well. To be a savvy investor in this game, you should know how your investments work. Here we look at five kinds of investments, their ups and downs, and what you need to become educated in them.
Bonds
Bond investments are characterized by two things. First, they are usually used for long-term, fixed-return investments. Second, their prices move inverse to interest rates. Third, they are characterized by high stability and low income.
There are two kinds of bond investments. The first are individual bonds. These bonds are bought with a set maturity. The income is paid out annually or semi-annually. They can create bond ladders, individual bonds with overlapping maturities, for steady income.
The second are bond funds. These are usually bought through a broker who transacts with them on the market. There is no set maturity, and while there is regular income, the exact principal does not return, and the income fluctuates.
To choose a bond investment, first, know that an annual payment of 1% of the total bond values is normal. Second, know what you are looking for before investing. In particular, individual bonds are better for the long-term, but they have a set yield. Bond funds, on the other hand, give a maximum yield depending on the market, but are more unstable for the long term. Third, be knowledgeable of interest rate levels, as they affect bond values.
Binary Options
Binary options trading is characterized by three things. First, whatever profit or loss incurred is within a set time frame. Second, it deals with predictions of the rise or fall of an asset’s value. Third, it is usually an all-or-nothing game.
What binary options trading promises is exact returns within set time frames. After the predetermined time frame passes, a specific percentage (i.e. 170%) of the investment is returned if the prediction is correct. Sometimes there is a return even if it is wrong (i.e. 15%).
There are three things to remember for binary options trading. First, know the asset. Whether the asset is a commodity price (i.e. of gold) or a stock dividend, research on the trends, and the news or events that could affect the asset. Second, know the broker. Read up on binary options and suggested brokers using sites like thebinaryadvisor.com. These sites help narrow down the most trustworthy ones. Third, remember that while the returns are always predictable, they are always set.
Forex
Forex (foreign exchange) trading is characterized by two things. First, it is a highly liquid and volatile market. Second, it is optimal for short-term day trading. Both facts mean that forex trading has potentially high returns, but is equally high risk.
Currency values fluctuate depending on their demand and supply, the same way commodity prices do. Forex investors buy a certain currency (i.e. euros) with a base currency (i.e. dollars). They assume the euro value will rise relative to the dollar value. They can then sell the euros and make a profit on the dollars.
To stay ahead in the forex game, keep ahead of the news as much as possible. Country instability or anomalies lower the value of a currency. The sooner you get bad news, the sooner you can sell before values drop. The sooner you get credible forecasts, the sooner you can buy before prices rise. Know of your possible loss percentages as well, since the larger the amount of currency you are holding, the greater the profit or loss.
Real Estate
Real estate investment is characterized by three things. First, capital output is high no matter the approach. Second, return on investment is high whether renting or selling. And third, it is ideal for the long-term, since property values rise and fall slowly compared to other markets.
Real estate investors earn two ways. First, they take out a mortgage and buy property to rent it out. The rent covers mortgage payments and house maintenance until the mortgage is paid off. Second, they buy property at its full value, and fix it up, or wait until the value rises before selling it for a profit.
Both capital output and risk are high per single investments. Without a tenant, a landlord will still need to pay that month’s mortgage payments. A property owner needs to wait for at least 2 months before selling for a profit. The best way to keep track of the market is to look at quantitative trends over a long period, or find professional mentorship.
Stocks
Stock trading is the most well-known of investments, and the widest in scope. The investments may be short-term or long-term. The returns may be low or high. The risk is lesser than with forex trading because stock prices do not move as fast, but it is much higher than with bond investments. Also, stocks are rarely traded directly. Instead, brokers are the ones who trade on the exchange.
A stock investor deals in part-ownership of one or multiple companies. The stock amount is usually too low for the investor to have a say in the company. However, stocks represent the overall value of the company. Stock investors profit by buying stocks while they are low and selling them when they reach higher value.
Like with forex trading, news is the key to staying ahead in the stock investment game. The value of a company rises and falls on market forces. One piece of news on untrustworthiness could drop their stock value through the floor. It is wise to plan stock investment for the long-term, with set profit-and-loss percentages.
Invest With Eyes Wide Open
The secret to effective investment is information. Information helps you avoid shady brokers and smooth-talking agents. Even if information cannot save your profits for you or place dividends in your pocket directly, it will be your key to wise investments. Research deeply and well on any kind of investment you plan to make and walk into your investments with eyes wide open.
