Investments are generally motivated by the desire for profit; each investor aims to use his/her money profitably to generate significant returns.
As a result, investors may decide to put their money into one or more of the available investment classes which include bonds, stocks, cash equivalents, real estate, various commodities, among other things.
Bonds, stocks and cash equivalents are the three traditional investment classes. All other investment classes fall under the category of alternative investment. Each class comes with its own risks, benefits or advantages.
The main advantage of investing in the three traditional classes is the lower initial investments amounts, that is, how much money you may want to begin with.
For instance, investing in real estate frequently necessitates that the investor making a sizable one-time payment (as real estate properties may be quite expensive). It is however easy for investors to purchase a modest number of inexpensive shares or bonds that have a good potential for growth in a single transaction, meaning, investors can buy these assets with a smaller sum of money.
Secondly, compared to some other investment classes, the three main investment classes frequently provide liquidity (ready market) for trades to be executed, whether buying or selling. There is a sure availability of bonds and stocks available to invest in on a regular basis.
Typically, the well-organised and controlled markets have a very high volume of daily transactions due to the high popularity of these investment classes and safety among investors. Investors in these asset classes can swiftly recoup their investment costs by liquidating their holdings. In contrast, the owner of a piece of real estate would have to wait several months before finding a buyer if they wish to sell the property and receive their money back.
There is transparency in the dealing in the traditional asset classes of investments. Information on trading activities is always available online and on demand. Investors are also at the liberty to quote their “fair” prices for trades to be executed. Investors can therefore quickly (and accurately) ascertain the market price of any asset traded in these exchanges.
This makes it possible for investors to decide on investments with maximum information. In contrast, it might not always be possible to determine the precise price at which the previous transaction in a specific location was completed if we look at the real estate market.
As a result, determining the precise market worth of one’s real estate holdings may be challenging. Consequently, such an investor can occasionally wind up selling his piece of property for less than its market value (thereby losing potential profits).
Due to the benefits mentioned above, many investors favour the three primary investment classes over the alternative investment classes when choosing where to put their money.
In finding out which investment is more suitable for you follow the process:
Speak to a professional: Visit an investment firm where a professional will attend to you. The Securities and Exchange Commission (SEC) website provides a list of investment firms that can attend to your needs. NIMED Capital Limited provides a good option.
Risk assessment profiling: The professional, in this case the professional at NIMED Capital Ltd, is expected to take you through a risk assessment profiling. This will inform which investment asset to select for you. As stated earlier in this writeup, the various assets come with their own risks.
Explanation of the investment classes: The professional will take time to explain the available investment classes to you. Normally, investors are supposed to look out for information about how the assets have performed in the immediate past, the current value and information of what the future holds (trend analysis, the intrinsic value and future projections).
These steps are expected to give the investor a fair idea which investment asset to investment in. The professional is expected to make a recommendation and the investor has the right to accept or reject.
Trends
The trends show that the fixed income market has recorded higher trades than the stock market.
Generally, investors are risk averse, and the fixed income market provides a good avenue for fixed returns for investors. Indeed, the fixed income provides steady returns over a long period of time.
However, the stock market also provides an option for higher returns because of the high risks. In the last report where Young Investors Research/NIMED Capital Research Team produced a detailed information about the performance of the Financial Stock Index, we pointed out some of the areas that can be looked at.
“Never invest in a business you cannot understand”, Warren Buffet once said. Whatever investment is introduced to you as an investor, ensure you understand the asset thoroughly before funds are committed to it. The Stock Pitch Competition is being organised by the Young Investors Network for tertiary education students to train them to select the right assets for investment purposes.
The writer is a researcher at Young Investors Research