Pros And Cons Of The Five Basic Investment Tools
1. Putting in a savings account, T-Bills, money market instruments and CDs- Though safe, these instruments have low interest rates, sometimes lower than inflation. When the inflation rate is higher than the interest rate you get from a CD, treasury bill, money market account or saving account, you are investing in a lost cause.
2. Collectibles- Collect things so that you can sell them at a profit in future. Why do their prices increase?
- Things become more desirable
- Inflation robs cash of its buying power, which raises prices across the board.
But they can get lost, stolen, stained, damaged by fire, general wear and tear, although their value increases as they get older. The constant hope of collectors is that the age of the thing will raise its price more than the condition of the thing that will lower it.
3. Houses or apartments: House has two kinds of advantages over other types of Investments. We can live in it while we can wait for the price to go up, and we can buy it on borrowed money. We are not scared out of it by bad housing markets unlike stocks.
4. Bonds- The government pays back the money, plus interest- not to the grandparents, but to the grandchildren. You should consider the inflation risk when buying a bond. They should pay a higher interest rate than treasury bills as they mature over a much longer period of time. Longer the duration, higher the interest rate. Longer the duration, higher the interest rate.
Stocks are riskier than bonds but they are potentially far more rewarding. Consider buying two options: one is McDonald's bond and another McDonald's stock.
5. Stocks- Likely to be the best investment outside of the house. Empirical evidence shows that stock is not a gamble. But you need to invest with a plan and sound knowledge of fundamentals. It has the highest annual rate of returns amongst all investment avenues.
Invest for the long term:
- Being young give you big advantage over old folks. A small amount of money invested early is worth more in the long run than a large amount of money invested later.
- Time makes money –Let time and Money do the work while you sit back and await the results.
- 20 years or longer is a right time frame that long enough for stock to rebound from the nastiest erections on record and its long enough for the profits to pile up. 11 % a year in total returns is what's stocks have produced in the past. Nobody can predict the future, but after 20 years at 11%, an investment of $10,000 is magically transformed into $80,623.
- It's not always brainpower that separates good investors from bad, often its discipline.
- Buy shares in Solid companies with earning power and don't let them go off without a good reason. The stock price going down is not a good reason.
- Crisis makes long-term investors into short term investors. Emotions get the better of them. Don’t let that happen.
- Being fully invested you'll get the full benefit of those magical and unpredictable stretches then stocks make most of their gains.