If you have a sum of money that you’d like to put to use, you probably want to know about the different ways to invest. While there are low-risk investments that pay a small amount of interest every year, higher-risk investments potentially return much more profit, but also carry the risk of losing money.
According to Investopedia, most people invest in stocks, bonds or a collection of the two shared with a group of other investors. These collections are known as mutual funds and are usually managed by a financial professional. Other types of investments include foreign currency, real estate, gold, options and futures.
If you’re investing in fixed-income products, such as bonds, you’re virtually guaranteed a small return on your investment without having to research your market. Many people invest in mutual funds, because they believe hiring a professional financial manager guarantees that they’ll earn a profit, but these types of investments don’t always perform as expected. Any type of high-risk investment, such as stocks, FOREX, options or futures, requires a great deal of discipline, planning and research to avoid losing money.
The highest-paying investments carry the most risk, and depending on the amount of money you’re investing, you may increase your potential return by increasing your risk through leverage, according to Investopedia. For example, foreign currency tends not to fluctuate much in a day, but by borrowing money from a broker, investors can turn small price changes into much higher-risk investments. This process is known as leverage.
If a broker offers 100:1 leverage, an investor only needs to pay $1,000 to invest in $100,000 worth of currency. If the market fluctuates by 1 percent, the investor makes or loses an amount equal to 100 times the fluctuation of the currency. If the investor loses money, it probably won’t be more than he has in his account since the fluctuations are so minute. If he guesses wrongly and the currency moves 1 percent in the unexpected direction, he could lose several hundred dollars in one trade, but most of the initial $100,000 is easy to get back in the FOREX market.
Safest Investments That Make the Most Money
Depending on how much money you have to invest, you can earn a large return relatively safely by using leverage in certain investments. For example, most analysts advise using leverage when investing in real estate through a bank loan or mortgage. The potential gains can be much higher if the mortgage payment is lower than the property’s return on your investment.
Investing in stocks can be profitable if the stocks pay dividends to their shareholders. This type of investment isn’t as safe as bonds or treasury bills, and you must research your investment and accept the risk. If the stock doesn’t pay its shareholders dividends, you will only make money if the stock price goes up. If it goes down or stays the same, you’ll lose money or make less than you would with a fixed-income investment.
Investing your money is an exciting opportunity and should be approached with caution and a certain level of respect for the market you’re entering. With all the different ways to invest, you’re certain to find a strategy that matches your goals and comfort level. You can check out the comparison between PPF vs ELSS funds.