Investing - The Three Popular Options
Investing in the modern day world can be mind boggling to the average Joe investor.
With a wide array of investment choices and the terminology used in them, one would actually have to be well versed to wade through the choices to arrive at the right decision.
We shall deal with the most common investment choices around the world.
Banks: Banks used to be the investment institution of choice for many years, even centuries.
The term "you can bank on it" is a testimony to the fact that investment in banks is the least risky of all the investment options.
The money does increase and the compounding effect ensures that the interest is also paid interest.
But, with other investment avenues opening up the interest rates offered by banks seem measly in comparison, even for fixed deposit funds for over a 5 year period.
Stock Market: The next most popular form of investment is the stock market option where investors put their money in shares of one or several companies to maximize profits.
Stocks are the barometer of an economy and an increase in the stock market value almost always means profits for the stakeholders of the company.
The most common example quoted is that if someone had invested $1000 dollars in GE when it debuted, that person would now be a multi-millionaire due to the ever-increasing prices of stocks of such "blue chip" companies.
The owners of stocks can also benefit from the dividends of the company and feel like they own the company.
However, such an investment is also the most risky of the several options, since markets may rise and markets may fall at any time.
Moreover, the person may not always pick the right stocks and end up with losers even in times of a bullish economy.
In times of crisis, stocks can fall and can hurt everyone.
The Great Depression of 1929 is an example that illustrates what happens when stocks fall leading to panic and a global economic downturn.
Mutual Funds: To reduce such high risk and high gain strategy, many have increasingly turned to mutual funds.
This investment option ensures that instead of blindly gambling on some company of their choice, the investor can put his money with a fund that manages the cash on behalf of their clients.
These funds employ Fund Managers who are experts at spotting the right investment options and avenues in the stock markets and by pooling the resources and the funds, they can hope to diversify the risk and increase the gains while limiting the losses.
While it might sound a safer bet, this is also fraught with danger that irrespective of a good pick, the markets might turn bad and hit all the stocks anyways and sometimes even the returns may not always beat the overall stock index rendering them an average risk, average growth investment.
Mutual funds can also be additionally profitable as a tax saving vehicle since money invested in some of these funds are eligible for tax breaks.
With a wide array of investment choices and the terminology used in them, one would actually have to be well versed to wade through the choices to arrive at the right decision.
We shall deal with the most common investment choices around the world.
Banks: Banks used to be the investment institution of choice for many years, even centuries.
The term "you can bank on it" is a testimony to the fact that investment in banks is the least risky of all the investment options.
The money does increase and the compounding effect ensures that the interest is also paid interest.
But, with other investment avenues opening up the interest rates offered by banks seem measly in comparison, even for fixed deposit funds for over a 5 year period.
Stock Market: The next most popular form of investment is the stock market option where investors put their money in shares of one or several companies to maximize profits.
Stocks are the barometer of an economy and an increase in the stock market value almost always means profits for the stakeholders of the company.
The most common example quoted is that if someone had invested $1000 dollars in GE when it debuted, that person would now be a multi-millionaire due to the ever-increasing prices of stocks of such "blue chip" companies.
The owners of stocks can also benefit from the dividends of the company and feel like they own the company.
However, such an investment is also the most risky of the several options, since markets may rise and markets may fall at any time.
Moreover, the person may not always pick the right stocks and end up with losers even in times of a bullish economy.
In times of crisis, stocks can fall and can hurt everyone.
The Great Depression of 1929 is an example that illustrates what happens when stocks fall leading to panic and a global economic downturn.
Mutual Funds: To reduce such high risk and high gain strategy, many have increasingly turned to mutual funds.
This investment option ensures that instead of blindly gambling on some company of their choice, the investor can put his money with a fund that manages the cash on behalf of their clients.
These funds employ Fund Managers who are experts at spotting the right investment options and avenues in the stock markets and by pooling the resources and the funds, they can hope to diversify the risk and increase the gains while limiting the losses.
While it might sound a safer bet, this is also fraught with danger that irrespective of a good pick, the markets might turn bad and hit all the stocks anyways and sometimes even the returns may not always beat the overall stock index rendering them an average risk, average growth investment.
Mutual funds can also be additionally profitable as a tax saving vehicle since money invested in some of these funds are eligible for tax breaks.
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