Investing For a Secure Future

Perpetual fears and apprehensions of a safe and secure future haunt everyone after they hit their thirties.
The intensity is two-folds greater when you have a family to look after and children to provide for.
Soon enough, you find yourself looking for a secure future to invest in and having a firm financial plan ready for desperate times of need.
It is rather prudent to be far-sighted in all financial matters and always look for secondary options for making money.
Investments are a great way to make that secondary source.
But is it as easy as it sounds?
Certainly Not!
Making the right investments and then gaining from them is not a walk in the park. It comes with many hurdles and challenges that you need to overcome, most of which are concerned with an investor’s behaviour and mental obstacles.
Successful investment begins with a courageous attitude!
Every investment, no matter how big or small, involves some risk.
Begin by a positive attitude towards managing risks along the way, not being adamant on eliminating them.
Completely eliminating risks is a futile endeavour; you can only do as much as mitigate them.
Equally important is to be familiar with your investment market thoroughly.
Failing to know how your investment market works can cost you severely; For example, it is a common practice to invest in the stocks that are currently running strong, but turning a blind eye to the reasons behind it can inevitably result in stock’s downfall.
Having a myopic view, therefore, is a hurdle that you need to overcome to react wisely to the necessary changes and deal aptly with the minor losses along the way.
In times like today, when we are practically living in a pandemic, facing unprecedented challenges with debilitating effects on the economy, investors are inclined towards seeking stability in their investments.
If you are aiming for a steady increase in wealth with time, you can opt for low-risk investments which usually pay a meagre return but if you have your mindset on higher returns, prepare to take some risk.
Even better, you can go for a mixed approach, having constant safe money in your hands at all times while giving yourself a window of opportunity to grow monetarily.
Following are some investment options with varying degrees of risks involved that you can choose from.

Stocks


Investing in stocks is a great way to breed your wealth.
Simply put, stocks are your share in the company that offered stocks.
By owning stocks in a company, the owner is entitled to a proportion of the organization’s assets and profits, based on equity.
Stocks are the greatest way for ordinary people to invest in most renowned and successful companies of the world.
Let’s consider the Pros and Cons.

 

 

ProsCons
  • Grow with the growing economy
  • Stay ahead of Inflation
  • Gain from dividends and issue rights
  • Capital gain as the stock price rises
  • Easy to buy
  • Easy to sell
  • You become part of the company
  • If a company performs poorly, you lose your investment
  • Prices keep fluctuating
  • You need time to know and understand the company and keep following its development
  • If the company goes broke, stockholders are paid last. 

Exchange Trade Funds (ETFs)

ETFs are becoming increasingly popular investment vehicles for investors who are aiming to achieve diversified investment exposure.
If you find it difficult to do your research, find and select sectors and fixed income securities, and track dividends and capital gains, an ETF can help you do all of this.
An exchange-traded fund is a type of fund that holds a basket of securities (Like stocks, assets, commodities, bonds etc.) which can be bought and sold in a public market, just like stocks.
It typically tracks the specified benchmark index and provides a real-time price of the fund throughout the day.
An ETF can be multiple stocks varying across different industries or could be particular to one industry.
The industries may include technology industries, banking industries, energy industries, etc. Therefore a banking-focused ETF would contain various stocks from the banking industry.
Let’s have a look at the Pros and Cons of ETF investments.

 

ProsCons
  • Build broadly diversified portfolios 
  • Can be traded like individual stocks
  • Lower transaction costs and fees
  • Can be bought and sold in secondary markets
  • Selling an ETF can be difficult if the market is facing high vitality
  • Tracking errors may occur to some cost
  • Maybe less cost-effective if you are making repeated purchases over time due to commissions. 

Unit Trusts

Another good way to grow your wealth with professional help is by investing in Unit Trusts.
Investments from some investors are used to create a pool of money, called a unit trust which is invested in a range of assets.
The Unit Trust is set up under a trust deed, and the investor remains direct beneficiary under the trust. All the profits go straight to individual unit owners instead of being reinvested back into the fund.
Unit Trusts are usually classified into Equity Funds, investing solely in stocks, Fixed Income Funds investing solely in bonds and Balanced Funds, investing in a mix of both.

Pros and Cons include:

 

ProsCons
  • Managed by Professionals
  • Risk mitigation due to diversification 
  • Liquidity, as trusts, can be redeemed daily.
  • Easy and Affordable to Invest
  • Cannot be borrowed, affecting potential returns
  • Price fluctuations
  • Not good for people looking for short term investments
  • Not good for people avoiding risks at all costs

Must Read: 3 Differences Between Saving Versus Investing

Mutual funds

Mutual funds are investment schemes, very similar to a unit trust, in which a pool of money is generated from a group of investors that are invested in stocks, bonds and other securities.
There are typically three various types of mutual funds, i.e. open-ended, unit investment trust, and closed-ended. They usually function on the same principle as a unit trust; therefore, we can say that it is similar but not quite the same.
The main difference between the two is in their legal structure. A mutual fund is an investment company that issues redeemable shares while a unit trust, (because it is not a company), only issue units.

 

ProsCons
  • Professional help in the management of an investment portfolio
  • Risk reduction due to diversification
  • Easy to buy and understand
  • High expense ratio and sales charges
  • Tax Inefficiency
  • Poor trade execution

Savings Account

If you are very conscious about taking risks, then a Savings Account is a good, very low-risk investment.
It is an interest-bearing deposit account that you open in a bank and then benefit from their modest interest rates.
The financial institutions invest your funds in several projects. They are usually safe and reliable and make a good emergency fund for fulfilling a short term financial goal, like buying a car or going on a vacation.

Let’s weigh the Pros and Cons:

ProsCons
  • Ease of Liquidity 
  • No risk involved 
  • Fast and easy to set up
  • Doesn’t pay as much as other investment options
  • Easy access can lead you to multiple withdrawals a year.

Physical Commodities

Investing in physical commodities can be traced back to ancient days when it was an important aspect of linking up cultures and people together.
Centuries later, it is still a significant investment tool.
There are several ways to make your footing in commodity markets.
You can invest directly in physical commodities or indirectly by purchasing shares in commodity companies, mutual funds, or exchange-traded funds (ETFs).
Most important physical commodities that you can invest in include Crude oil, Gold and Base metals like Aluminum, Zinc, Copper, and Silver etc.

 

ProsCons
  • Protects investors in times of Inflation as prices of physical commodities usually rise
  • Great chance to maximize returns
  • High Volatility
  • Expected returns can take too long.

The Bottom Line

If you are a clever investor, you probably already know the ramifications of putting all your eggs in one basket.
It is always best to opt for diversification in investments to maximize your chances of hefty returns.
It is almost impossible to cut out risk entirely; therefore, it is vital to diversify your investment portfolio to reach your investment goals successfully.
Depending upon how much risk you are willing to take and how much you want to invest in, you have several investment options that you can explore.
For more details, guide and help on investing aptly, download our Investing eBook today!

author

ABOUT THE AUTHOR

Jun Sing Tan

I help young adults and working professionals achieve their financial goals with a full suite of risk management and wealth accumulation solutions. I firmly believe that financial education should be easy and achievable for all. I am committed to service and hope to be your one stop financial solution.

author

Jun Sing Tan

November 21, 2020

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