Wednesday, July 24, 2013

Various investment products for different investment styles

All of us have different personalities. Some like things to be fast, others like it to be slow. Some are patient while some are not. The good news is there are different investments that we can make to suit our personality. It is important to find out your investment style and practice it so that you can be successful in it.

1) If you're a super risk adverse type of person who doesn't like risk, you can invest in:

Fixed Deposits
The returns in fixed deposits are generally low now due to the low interest rates environment. They are capital guaranteed and you will get your capital back with interest at the end of the fixed period.

2) If you're a risk adverse person but wants higher returns, you can invest in:

Bonds are generally safe assets where you can get your capital guaranteed back unless the issuer of the bond defaults on its debt. However, make sure you know how to value bonds and don't buy when the bond is overvalued. Know the difference between corporate and government bonds.

3) If you are less risk adverse and want higher returns but do not have time to monitor the market, you can invest in:

Index ETFs
I've wrote about investing in ETFs in my previous blog posts. You can read it here:

Investing Basics - Low Cost Index Fund investing (Passive Investing)

Managed Funds or Unit Trusts
These are funds that you can invest in which are actively managed by a professional fund manager. This comes at a fee as most fund houses charge relatively high sales charges and even platform fees.

4) If you want to take control of your own investments and are somewhat patient, you can invest in:

When you buy a stock, you're a shareholder of the company which means you're actually one of the owners in that company now. Buying stocks requires knowledge and monitoring of the market. Most people with a full time job will still be able to invest in stocks. Investors do not have to monitor the market all the time as compared to traders. Most investors buy stocks when they are undervalued or they buy for its dividends which provides a stream of passive income. Investing in stocks requires you to know how to interpret financial statements and also know the value of the company relative to the stock price. Investing in stocks sometimes requires patience to wait for the stock price to rise relative to its value.

5) If you love risk and want things to be fast, you can be a trader.

A trader can trade in the foreign exchange market, the stock market and the commodities market. They can also use derivative products like options, futures or CFDs. Trading requires you to monitor the market all the time and in essence, it is a full time job. Most people who already have a full time job cannot be a trader. Do note that trading is a very hard profession and very few people succeed in it. It requires you to control your emotions. It is more of a psychological game.

I started out learning how to trade and traded a few times. With a full time job, it is almost impossible to trade. Now i only trade once in awhile when there is a clear opportunity. Otherwise, my investment approach is more of finding undervalued stocks to invest in. This suits my style and my personality. I would rather take control of my own investment as i like and have an interest for investing. It has become part of my life now.

As we can see, there are many investment products suited for different styles. It is up to you on which ones you want to choose. As a rule of thumb, always invest for returns higher than or equal to the inflation rate. The purpose of investing is to grow your wealth. You do not want inflation to devalue the cash you have over time. If your investment return is lower than the inflation rate, your investment is actually worthless.

Related Posts:

Investing basics - How do I start investing?

Investing Basics - Low Cost Index Fund investing (Passive Investing)

No comments:

Post a Comment