Best Investment Options to Grow Your Money? Almost everyone in the world has thought about this question at one point or the other. To answer this question let us look at how people tend to save their money just to spend it. Though a lot of people have a good amount of savings, they simply let their money sleep (no investment) in the bank considering the fact that the bank safely keeps their money and provides interest over the money saved. What a lot of people don’t have in mind is the inflation of prices and services, which is higher than the interest the bank provides them over the years.
As time passes, the money sleeping in your bank account loses its value. In order to actually make your money grow, you need to invest in something that will eventually beat inflation and give you good returns over the years. Before you invest, you should know the ins and outs of investing and you must think long term.
There are certain factors you need to consider before investing your hard earned money:
• Risk (the possibility that you might lose your money, or a part of it)
• Liquidity (how easily can you withdraw your money in case you urgently need it)
• Returns (how much can your money grow)
Table of Content…
1. Stocks
Many people believe that the stock market is very risky, but in reality, if done right, it is the best investment option out there. It has made a lot of people rich as the returns are very high. Warren Buffett, the renowned investor, said in an interview that he started investing in stocks at the age of 11 and wished he had started earlier. By the time he turned 17 years old, he had earned about $53,000.
To gain a good profit from the stock market, you need to understand how the market works and predict the rise and fall of a stock’s value in the future, by studying its management, fundamentals and taking technical factors into account. You can buy and sell shares of publicly known companies and decide which company would do well as this will completely reflect on your gains and losses.
When you buy a stock, you ultimately own some part of that business or company. Some companies even pay you a share of their profits for your part of investment in their company, called dividends. It is important to study and keep track of stocks regularly before you invest.
2. Health Insurance
Though a lot of people do not consider this as a necessary investment, you should know that life is unpredictable. God forbid, if in future, you meet with an accident or suffer from an illness, you might have to pay crazy hospital bills for your treatment. Considering the low risk and life-saving returns, which prevent you from falling into situations where you might have to look for loans or exhaust your life savings completely to save your life, it is better to invest in a health insurance policy. In today’s time, there are many health policies available online for you to choose from. It is recommended to invest in a health Insurance policy and be ready to face the most unpredictable times in your life.
3. Mutual Funds
Where stock markets are a one-man show, which requires you to make all the decisions by yourself with potential risks involved, a mutual fund works with a team of people where the money is collected from a group of individuals and a money pool is created. The fund manager then uses this money to invest into assets, and you don’t have to worry about studying markets or making any decisions. With mutual funds, you can invest in stocks, real estate, bonds, gold, etc. In reality, only a few mutual funds actually beat the indices (SENSEX or NIFTY). And, even when they do beat the market, you must take into account the heavy fees the fund managers charge for investing on your behalf.
• Systematic Investment Plan (SIP)
Systematic Investment Plan (SIP) is a simple tool to invest in mutual funds and is similar to fixed deposit, where you have to deposit a fixed amount regularly for a certain period of time in the mutual fund schemes. These schemes have the potential to beat the inflation and create wealth for you in the long run. An SIP which continues for a longer period helps you to harness the power of compounding. You can invest in any scheme of your choice without worrying about the ups and downs of the market. SIPs can also be used to invest in stocks, as per your requirement.
4. Index Funds
Index funds are a type of mutual fund or Exchange Traded Fund (ETF) that tracks the market indices such as NSE NIFTY 50, BSE SENSEX, NASDAQ 100, etc. These funds work on the passive investment strategy with an objective to deliver returns similar to the performance of an index, which is a combination of all the stocks present within it. Index funds are built to have similar performance to that of the major market indices and include a number of investments. For example, if you want to invest in stocks without any hassle, you can simply invest in an ETF that tracks an index like NIFTY 50 which includes 50 large-cap stocks like Reliance, HDFC, TCS, etc. An index fund also has its own risks involved. The risk depends on the type of index you’re following.
5. Bonds
Bonds are a type of loan given to a company or a government that needs money to grow its business, or fund new projects, or to support its growing expenses. The company or the government in return pays interest regularly on the money lent and returns the money after the maturity of the bond. Bonds are a good way to preserve your money with some additional returns. With low risks involved, bonds are a good alternative to stocks. But bonds still have their risks involved as the company might fail to pay your loan even after the maturity period expires. You can invest in bonds based on the rankings assigned by credit rating agencies.
6. Commodities
Although investing in commodities like gold and silver won’t make you a billionaire, this is the best way to preserve and grow your wealth over the years. You should invest at least 10-20 percent of your capital in gold (or silver) as it is the most liquid asset you can own. Gold and silver, unlike other assets require no maintenance and can never lose their value. The value of Gold can be understood in times of uncertainty and emergency, as seen during the COVID-19 times. Like Robert Kiyosaki says “This is real money, God’s money!”. The fiat currency that we work day and night for, in turn, loses its value but gold and silver will only make you wealthier over time.
7. Real Estate
Real Estate is considered one of the safest investment options in India. Although it requires huge amounts of capital, it is one investment that provides you a strong, stable passive income that has a dividend yield of 7-10 percent. But if you want to become rich through real estate, you must be thoughtful about where you invest. Buying a house, renting it for several years, and selling it after the inflation might seem like a good idea, but remember that real estate price appreciation is not what it used to be. Also, the house that you buy will require maintenance and you might have to renovate it multiple times, which will of course pull money out of your wallet. Also, it is not a liquid investment, it might take months (or even years) to sell your house when you want to.
• Real Estate Investment Trusts (REITs)
Investing in real estate requires huge capital which is why most people don’t consider it as an option. REITs or trusts for properties have tried to come up with a solution for this problem. They are enterprises that own or fund assets, generating profits in a variety of property sectors. You can invest in residential and commercial properties, combining your capital with others’, to earn a profit from your share without actually buying the whole property.
8. Cryptocurrency
Cryptocurrencies are a form of digital asset, used by people as an investment, or to buy things online. You can use traditional fiat currencies in exchange for cryptocurrencies online. The most famous cryptocurrency, as you might have heard, is Bitcoin. There are several other cryptocurrencies out there, such as Ethereum, Ripple, Dogecoin, etc.
Cryptocurrencies are exchanged (or traded) between individuals, without the oversight of a bank, government, or any other regulatory authority. This is one of the reasons why many people prefer cryptocurrency as their main form of investment, as they don’t want a bank or government to be involved with the transactions.
You also have the option to mine cryptocurrency, where you can earn cryptocurrency without any exchange of fiat currency. For this, you need huge computational power and the ability to solve complex ‘blockchain’ puzzles in order to get rewarded in the form of cyptos, such as Bitcoin.
Want to know about money transfer methods within India (and other basic banking terms)? Head over to our post: https://gofinanceliterate.com/basics-of-indian-banking-system/
If you’re a teenager looking forward to opening a bank account to kick-start your freelancing career, read our blog post: https://gofinanceliterate.com/savings-account-for-teenagers/
Looking for financial freedom? Read our post: https://gofinanceliterate.com/financial-freedom-through-financial-literacy/
