| There are a great many forms of investment. Loosely, they are divided into 4 groups: short-term deposits, bonds, property, stocks and shares. Within each asset category there are investments to suit diverse kinds of risk, duration, returns and liquidity. There are also various ways of investing. You can decide on the 'do-it-on your own' scheme and make an investment in several asset classes. Or, you can invest in a managed fund where specialists make a whole range of investment decisions for you.
1. SHORT-TERM DEPOSITS
A) Bank savings accounts
A bank savings account is the simplest form of cash investment. Returns are lower compared with other investments, but returns are guaranteed by the bank. Therefore, your investment will not fall in value. You can withdraw a part or the whole amount of money whenever you wish (total liquidity). This makes these investments perfect for short-term savings goals, or as a place to keep your emergency fund.
B) Fixed term deposits
You give the bank a sum of money for a set period. In return, you receive a higher interest rate than you could receive from a savings account. You can withdraw your money, however, you will get a lower interest.
2. BONDS
Bonds are issued by the government or a corporation. You give them a sum of money for a certain term, and they promise to pay a set interest rate and pay you bank at maturity. Bonds lock your money away for a fixed period of time, but they can sometimes be traded.
3. PROPERTY
Investments made in property can be profitable, provided that it is well managed. You can make direct and indirect property investments.
A) Direct property investment
If you want to make a direct property investment, you can control the daily management of your property yourself, or use a property management business to do it for you. A property management company finds tenants, collects the rent etc. Charges for these services are normally a percentage of the rental income.
B) Indirect property investment
For an indirect property investment, you can make an investment in a private superannuation investment scheme or managed investment fund that invests some of your money in property. This kind of indirect property investment also makes it easier for an investor to benefit from diversification.
4. SHARES
If you invest in stocks and shares of a public business listed in a stock exchange, you get the right to share the future income and value of that firm. Your return comes either in the form of dividends or in the form of capital gains. Surely, stocks can also go down in value.
Before deciding on a kind of investing model, consult your financial consultant. |
Article Details