Investing is a must for creating wealth.
The key to getting rich is investing smartly. While making investment decisions, you got to keep in mind the balance between the risk factor and return.
High-risk investments might offer the greatest of returns but may incur huge losses as well. It’s all about your priorities and goals.
If you are aiming for long-term investments, riskier options can fit the bill as they are profitable over a period of time. If you have limited finances and your priority is financial security, then safe and low-risk options are the way to go.
There is no formula to investing successfully but the best way forward is to create a mixed portfolio of safe to medium-risk investable assets.
High-risk assets could be an option for those who are ambitious and don’t mind huge losses. But generally speaking, most people have a tolerance level of medium-level risk.
What are Investable Assets?
Investment assets are liquid or near-liquid assets.
They are the kinds of investments that can be easily converted to cash. Typically, investment assets would include your savings bank accounts, certificates of deposit, bonds, stocks, mutual funds, retirement accounts, crypto, etc.
Your physical assets like home, real estate properties, jewelry, etc are not considered investable assets since these are not directly convertible to cash.
Importance of Investable Assets
Investment assets are a must for better financial planning.
Once you know all about the quantity and quality of investment assets in your portfolio, you can make better investment decisions for the future. Assets that can be easily converted to cash are also needed for financial security and emergency circumstances.
You might face situations such as an illness or a sudden mishap when you need cash immediately. Your investable assets would come to your rescue then.
Investment assets are a must for achieving financial success and freedom. Good investment skills are key to creating future wealth. Wealth creation is a continuum.
You got to be sure that you have enough money in your portfolio to invest when the right opportunities come along.
How to start investing
Creating investable assets takes time. So it’s better to start as early as you can.
The ideal way to start is by creating an investment plan. The first step is to make a note of your goals and priorities. Why do you want to invest? Is your main aim financial security or wealth creation? What is the status of your finances? It’s best to write down all these things before making an investment plan.
Investment is a complex subject so it might be a good idea to take the help and advice of financial advisors and experts. They can assess your short-term and long-term goals, and create a plan best suited to your needs.
Remember that investment is a long—term commitment. If you want to make money, you have to be at it continuously. As you go along the path, you will learn and your financial skills will improve. But you got to start somewhere.
Where to Invest your Money in 2022
Different people have different criteria for investing money. For some investors, safe and risk-free investments are the way to go. For others, maximum returns guide their investment decisions.
It’s best to have a balanced approach where you aim for maximum returns with minimal risk.
One should ideally aim for a diverse portfolio with a mixed basket of multiple investment options so that the risk factor gets balanced out by a bunch of safe investment channels.
Let’s take a look at various investment options for 2022, moving from best to worst.
1.Index Funds
The best investment option for 2022 is one that combines maximum return with minimal risk.
There is a moderate amount of risk involved with index funds but long-term investment usually generates good returns.
Index funds diversify your investment portfolio by letting you invest across many stocks. Unlike mutual funds, you don’t need to hire fund managers and experts to manage index funds.
Since index funds track a particular index, they can be passively managed. The low investment costs make index funds an ideal option for beginner investors.
The best way to start investing in index funds is by choosing the S&P 500 index fund. This index tracks the leading 500 companies on the stock market.
Historically, a passive indexing approach is known to work better because it does not depend on the individual stock-picking abilities of a fund manager. This minimizes risk and volatility over the long term.
2.Dividend Stocks
Dividend stocks are ideal for investors looking for lower-risk investments. They are less prone to market volatility but can generate solid returns in the long term.
Dividends are regular cash payouts made to shareholders out of a company’s profits as a way of rewarding them for owning stock. These are generally mature and well-established companies that have a strong market presence.
Dividend stocks are great for building a passive income. They offer you the dual benefit of value appreciation and a long-term regular income. The dividend payouts can be continuously reinvested, thus allowing you to optimize wealth creation through the power of dividend compounding.
Dividend stocks are an ideal investment asset for 2022 considering their ability to fight inflation. The current volatile nature of the global economy makes them a relatively safer investment vehicle.
3.High-Yield Savings Accounts
In the current global climate, most investors are readjusting their priorities. With inflation rates soaring, protecting one’s investments is a major concern.
No wonder the investors are falling on the tried and tested investment strategies of safe returns. They might not theoretically sound that great from a return point of view but given the current volatility of the stock market, it’s a wise way forward.
High-yield savings accounts are one of the safest investment options that keep your money liquid, thus ensuring the availability of quick cash during emergencies. The returns, though not very high, are strong, considering the total absence of risk.
With the possibility of interest rates getting hiked this year, returns might be going up if you park your money in a high-yield savings account.
Though hardly as exciting as riskier investment options like stocks, high-yield savings accounts are a must for safeguarding funds for emergency circumstances. The best part is you can access your funds anytime without penalty.
4.Certificates of Deposit
Another safe investable asset, certificates of deposit are liquid assets with zero risk involved.
Certificates of deposit are ideal for investors who are averse to taking risks but would still like to capture a little more growth.
These accounts offer a higher fixed interest rate as compared to most savings accounts. There is generally a lock-in period for your money ranging from six months to five years. The downside is you must pay a penalty if you want to access your funds before the fixed period. But the good thing is you get paid a higher rate of return.
Certificates of deposit are a great long-term investment option. You can choose your own lock-in time period as per your goals and priorities.
Certificates of deposit are best for those looking to invest money they won’t need for the designated time frame.
5.Government bonds
Government bonds are debt instruments issued by a government to support its spending and obligations. They are low-risk investments ideal for those who want decent returns but are hesitant to venture into more risky investable assets.
To put it simply, government bonds are debt-based investments through which you loan a certain amount of money to a government in return for a certain, agreed rate of interest.
They make interest payments at regular intervals. Government bonds are safe investment vehicles providing you with a regular income.
Government bonds are not free of risk though the risk factor is considerably lower than many other investable assets. There is a downside too. Because of the low-risk quotient, the return is relatively lower as well. But they are good for wealth creation in the long term.
6.Corporate bonds
Corporate bonds fall in the high-risk category.
So they are not that great from a safety point of view. But the returns are significantly higher so they are ideal for investors looking for a good cash flow.
Corporate bonds are debt securities issued by companies for raising capital. An investor lends money to the company by buying a corporate bond and gets a series of interest payments in return.
They are a good option for risk-taking investors looking to balance their investment portfolio. Corporate bonds are often used by long-term investors to offset riskier investment options like growth stocks. They are great for long-term capital protection.
But you have to be careful while going for corporate bonds.
You must carefully review the ratings of various bonds. These are the standard ratings issued by the government rating agencies.
High-yield corporate bonds fall lowest in the rating because of the higher risk factor and a greater interest rate to compensate for that.
Corporate bonds can be purchased through an online broker but the transaction fees might be on the higher side.
7.Growth stocks
They can generate high growth and high investment returns.
But growth stocks feature towards the bottom of our list because of the high risk and unpredictability involved.
Growth stocks are issued by companies that demonstrate a high development potential.
Many such stocks are issued by tech companies. Growth stocks are lucrative because they can lead to massive wealth accumulation through capital appreciation.
They are risky because investors have to shell out a lot for the stock.
If a company suffers huge losses, investors don’t have anything to fall back in the long run as these businesses do not make any dividend payments during the lock-in period.
Growth stocks aren’t for everyone. They are for fairly seasoned and ambitious investors who are open to taking risks.
Investment in growth stocks requires considerable knowledge and expertise. If you are considering buying individual growth stocks, you must undertake a comprehensive analysis of the company. It’s always advisable to take the help of a seasoned finance professional.
8.Small-cap stocks
Small-cap stocks are stocks of relatively small companies. Such companies have the potential for extremely high rates of growth, thus making them appealing investments.
Small-cap stocks are very risky and they may fall quickly as they succumb to market volatility, thus making the investors lose money.
One has to shell out a lot for a small-cap stock, especially if the company has the potential to grow and gain on a large scale.
Small-cap stocks are ideal for risk-prone investors looking to accumulate massive wealth. There are huge risks involved, but if a company manages to grow well, you can get ridiculously high returns for years on end.
Financial knowledge and expertise are a must for investing in small-cap stocks.
If you are going to buy stocks of individual companies, you must be able to do a complete background research and risk assessment of that company. You must evaluate the pros and cons and then decide. The decision to invest in small-cap stocks should not be made in a hurry.
9.Cryptocurrencies
Cryptocurrency investment is for those who actively seek out risks to become rich!
It is a digital-only currency intended to act as a medium of exchange.
The popularity of cryptocurrency has shot up over the past few years, owing to the pumping in of dollars shooting up prices and making cryptocurrency a sought-after investable asset.
2021 was a major year for cryptocurrency with its most famous type Bitcoin hitting all-time high prices multiple times.
Crypto is a hot investment asset considering the kind of wealth generation it offers. It is the real-life version of the reel life rags to riches story! But the risk associated is so huge that you could also go down from riches to rags overnight. And that’s the downside of cryptocurrency that places it at the bottom of our list.
Cryptocurrency is extremely volatile making investors vulnerable to losses. But that’s just the tip of the iceberg.
The bigger worry is that cryptocurrency is at a pretty nascent stage. The regulatory environment surrounding it is far from clear.
Countries are in the process of formulating laws to regulate cryptocurrency, but it’s easier said than one. These virtual currencies are extremely vulnerable to cyber crimes making the investment even riskier. Furthermore, it would be a nightmare for an investor to wake up one fine day and find out that many countries have banned cryptocurrency!
Experts recommend it’s wise to keep cryptocurrency investment less than 5 percent of your overall investment portfolio.
