Inflation causes money to gradually lose value, up to 2-3% a year, but with the creation of the 2020 stimulus packages, it’s scary to think how much worse inflation will get. Keeping money at home or in a bank is a bad financial decision that inevitably leads to loss of your capital’s spending value. This is why most people decide to invest their money, but they often question what to invest their money in. What are some small investments that are both safe and profitable?
Real Estate
One of the most common answers to the question of where to invest money is real estate. Buy an apartment and rent it, or if your finances allow, choose a two-family home or duplex and rent the second unit. Renting can be a long-term profitable investment, but several other aspects of real estate investing should also be considered.
Real estate is generally considered an illiquid asset. If you urgently need money, you may not be able to sell the apartment or house at a fair value when your crisis emerges. Also, there is always the standing question: will real estate prices rise in the long run? Due to negative demographic trends, a slowdown in real estate price growth is expected.
Costs of landscaping, renovation, insurance, repairs, etc. can certainly cut into your profits, so it’s necessary to calculate how much money it will actually bring after deducting all the costs of owning the property. The lowest cost option will be renting a room in your home, an apartment, a home that’s a two-family home, or a duplex.
Term Savings
Saving in banks is a very popular investment and another common answer to the question of where to invest money. Since the risk of bank bankruptcy is relatively low, and there is even state deposit insurance of up to 100,000 euros and up to $600,000 USD in the United States, term savings are a safe way to invest. But let’s look more closely. What about the cost-effectiveness of saving? In periods when interest rates are high, saving is a profitable way to invest. It’s also good to have money at your disposal when you need it. However, when interest rates are low, saving can lose money in the long run. The trouble is that the real inflation rate is higher than the nominal interest rate recently.
Shares
Stocks are a risk, but the prices of individual shares can rise by several hundred percent in just a few years. It is very difficult to recognize when and which shares will have the highest yield. The stocks are also subject to cyclical movements related to good economic times and recessions, which typically come periodically every 5-10 years. The possibility of complete loss of investment in the event of bankruptcy of the company should not be neglected either. Create a plan and do your research. Read this post: Do this Before Investing.
Investment Funds
Since stocks are a risky investment and such an investment requires a lot of knowledge and time to monitor the companies and the market situation, many people will use investment funds. In the long run they are more profitable than term savings, though most investment funds fail to achieve even the average return of the stock market. The biggest reason for this is the large fees for managing clients’ money, which significantly reduces the real return on funds. Dave Ramsey, a well-known financial advisor and radio personality, is a big fan of these funds. He writes about them in his post How to Invest in Mutual Funds.
Voluntary Pension Funds
One way to ensure a better financial future is to pay money into a pension fund. The advantage of this way of investing money is that a person who utilizes this investment can fully dispose of the entire saved amount after the age of 50, and the funds are hereditary in the event of death. The disadvantage of this method of investing is the same as with classic investment funds – banks will not manage your money for free, and you also have less flexibility or liquidity.
Life Insurance
In addition to the principal and interest that the insured usually receives after expiration of the contract, the person is also insured against death, injury, serious illness that requires expensive treatment and other situations agreed in the insurance policy throughout the policy term.
The problem with insurance is that it is a long-term investment. If the insured wants to stop paying the policy after a few years, the insured often does not receive almost any of the funds paid. In case of illness, there is a risk that the insurance will not want to pay the agreed amount, so you can end up in court, which brings additional costs, dissatisfaction, and stress for the insurance beneficiary.
Upon expiration of the insurance policy, users are often disappointed by the amount received because they see that they could have done much better by investing money in something else. Do a lot of research if you’re considering this option.
Investment Gold
Investment in gold means gold bars, or coins made of pure gold with a purity of at least 90 percent, such as the Austrian gold ducats Franjo Josip. The disadvantage of this investment is that the gold needs to be physically stored somewhere, which results in overhead. Some investors in gold keep their levers at home in a hidden place, while others keep them in the safes of banks or companies specializing in the distribution and purchase of gold, which usually carries certain costs.
Unlike real estate that has been capturing capital for many years and is difficult to sell in emergencies, the global gold market is very liquid. Unlike investment funds and stocks, gold is resistant to recessions and political crises. In uncertain times, the price of gold tends to rise, which brings the owners of gold capital in situations when it is most needed. The best time to buy gold is when the markets and currency are strong, buy for less when you can.
In the last 50 years, the price of gold has been growing by an average of 8% a year, which, in addition to covering inflation, has brought significant profit to the owners of investment gold.
Do plenty of research before putting your money anywhere. I didn’t put crypto on this list, but if you’d like to read about crypto currencies and learn more, check out the post Introduction to Crypto Investing.
Make sure to have a plan – don’t just do what everyone else is doing. It might take a few months to organize, but it’s better to be prepared and miss out than not be prepared and lose everything. Never invest what you aren’t willing to lose. There is always a risk, so think things through.
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