If you’re worried about investing your money in the stock market, there are plenty of other investment options available. However, there are positives and drawbacks to each of these too. We explain the pros and cons to help you make an informed choice.
Should You Invest in Stocks?
The stock market has a reputation for being risky, and it’s easy to see why. It fluctuates constantly and is impacted by a whole range of global factors. Even the savviest stockbroker can’t always predict stock market trends, and if you don’t have a background in finance, then you could lose a lot of money by day trading.
On the other hand, investing in a diverse portfolio of shares over the long-term can give you great returns, far better than the banks’ savings rates or government bond yields. You’ll need to do your research on the companies you want to invest in and then check on them periodically (usually annually) to make sure they’re still on the right track. Most importantly, you have to be able to ride the ups and downs and keep a long-term perspective. If each small dip in the market causes you to panic, then stocks may not be the best investment for you.
Business ownership doesn’t always mean that you’re running a small business. Rather you could be investing in someone else’s business. In exchange for the capital you provide, you receive a stake in the company, which means you’re entitled to a share of the profits.
Of course, the downside of being in a business partnership, even a silent one, is that you’re also liable for the business’ losses and debts. For this reason, it’s critical that you only invest in a small business if you trust your business partner to operate the business in a profitable way.
Many people are drawn to invest in real estate because they’re buying an asset they can see with their own eyes. Moreover, most people have a good understanding of how the property market works, either because they own their own home or they have rented in the past. Banks offer a range of mortgage products targeted at investors, which enable them to use the equity in their homes as collateral for their investment property.
Don’t jump the gun yet, though. Burning hard-earned money isn’t fun and will likely get you into future troubles. And owning and maintaining your property can get costly. Avoid potential pitfalls by looking for other options to invest in real estate.
These days, you can invest in real estate without buying property through real estate investment funds (REITs), real estate sponsors, and crowdfunding platforms. However, doing your due diligence is fundamental to ensure you’re putting your money in the right place. Go on the internet, and look up sponsor feedback and grades. This way, you’ll get a clue on where to trust your money, what to avoid, and how to invest in the right deals.
Peer-to-Peer lending (P2P) is quite new, but the industry is growing fast. P2P platforms are online services that connect investors with borrowers.
When you sign up, you can decide how much risk you want to take on and the minimum credit score you want the borrower to have. The platform then pools your money with other like-minded investors and issues loans to borrowers. The borrower makes repayments to the platform, and the P2P platform divides the repayments up so that each investor receives their share.
Because all this happens online, the transactional costs are quite low compared to other forms of investment.
Many people mistakenly think that precious metals, such as gold and silver, are a safe investment. This is, in part, because people are comforted by the tangible nature of the investment and partially because they have inherited the belief from their parents.
In fact, precious metals also fluctuate in value and are loosely correlated with exchange rates. The only time that precious metals are a safe bet is if the economy collapses altogether so that people move away from money and start using gold as currency.
Downsides to Alternative Investments
Alternative investments have many of the downsides that shares have; they can lose value or simply not earn enough to keep up with inflation. However, there can be a few other risks involved.
Firstly, if you are investing in a business or property, it will likely take up a sizeable portion of your savings. Essentially this means you are putting all your eggs into one basket instead of investing in a diverse range of assets.
Secondly, tangible assets come with their own risks, such as fire, flood, burglary, or mismanagement.
Thirdly, it can be difficult to get your capital back quickly. For example, it can be hard to sell a portion of a business, and selling a house can take months especially if need it to pay medical bills for a critical illness. The stock market, on the other hand, allows you to move funds more easily.
The Bottom Line
Whether you should invest in the stock market depends on your situation. Just remember there are plenty of other options available for you to make the most of your savings.
Greg is the President of Dundas Life, a digital life insurance brokerage. Dundas Life empowers people to make better financial decisions for their loved ones, and to know the peace of mind that life insurance ownership can bring.
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