Thinking about suitable asset classes? Consider your investment goals, time frame and risk tolerance. Before investing your hard-earned money, you need to know the pros and cons of investing in different asset classes. Let’s explore some potential asset classes!
Are you a risk taker? Do you enjoy analysing businesses and identifying those with the greatest growth potential? If this sounds like you, perhaps investing in equities is the way to go. When you invest in equities, it means that you own a part of the company and you expect its share price to increase in the long run. You can generate income via dividend payouts and/or capital appreciation. However, you can also lose money if your equities fall in value. The large potential reward comes with high risk. Not feeling a high-risk product like equities? Let’s look at something less risky – bonds!
Bonds are debt securities that pay a fixed rate of return in the form of interest payments. When you invest in bonds, you are basically lending your money to the issuer. Usually when you decide to buy bonds, you trust that the issuer is able to pay back the amount together with interest. Does this mean you will never lose money? Not quite. Bond investors can lose their capital if the issuer goes bankrupt. However, bondholders are entitled to being paid ahead of equity investors, making it a safer option.
Cash, or cash equivalents
Are you concerned about locking up your capital for too long? If this is you, perhaps investing in cash or its equivalents can be a great idea. They generally have an investment period of 1 year or less. The main advantage of investing in this asset class is its liquidity. Liquidity refers to how easily an investor is able cash out his investments without losing significant value. If you are investing in favor of cash flow, this investment vehicle could really work for you!
Are you bored of traditional assets and looking to explore non-conventional products? Check out alternatives such as structured products and private equities to spice up your portfolio. Traditionally, only institutional and HNWIs get involved in these products as they often require a large minimum investment. Things are different today. There are many available options for investors with minimum investment amount as low as $1 USD. Concerned about locking up your capital for a long period of time? Rest assured, there are products with tenures as short as 3 months.
However, you need to be aware of the risks involved before investing in alternatives. These products generally have greater market risks since there is no guarantee the investments will make profits. In addition, your investment capital is usually locked in during the investment period, leading to liquidity risks.
We hope this article helps you to take your first step to educate yourself on learning to invest and how to grow your capital. There is an asset class for different risk appetites. Start investing early and you’ll thank yourself in the future!