What are the best investments? It is a question that anyone interested in diversifying their sources of income has asked themselves at least once in their life. The answer to this question is rather nuanced, because if you ask ten experienced investors what the best investments are, you will get different answers.
And it’s normal, because every investor has their own preferences, their own goals, their own risk appetite and their own vision.
Some investors will prefer stock market investments in:
- ETFs (Exchange traded funds)
- Mutual funds
Others will prefer to invest in real estate, others to develop companies, others to invest in gold and art.
So actually the pertinent question would be “what are the best investments for me?”.
How To Determine What Are The Best Investments For You
Here are some criteria you should consider when deciding which types of investments are best for you.
The Risk Involved By That Investment
When investing you must first consider the risks you take, how likely you are to lose the amount invested.
If, for example, you have a high risk aversion and a conservative profile, then investments with guaranteed income such as government securities would be best suited for you. But if you have a considerable appetite for risk and you are not bothered by large price fluctuations then investing in the stock market or the Forex market may be more interesting for you.
Amount of Money Invested
You need to focus on investments that are appropriate for the budget you want or can allocate to your investment.
For example, if you want to buy Berkshire Hathaway Class A shares, but you have 50,000 euros at your disposal, well that is not possible. (Berkshire Hathaway are the shares that are traded at the highest price on the stock exchange, approximately $ 300,000 per share in 2019.)
Also, if you would like to get involved in large-scale real estate developments, such as the construction of residential complexes or shopping malls, but you do not have millions of euros available for these investments, then that investment is not right for you.
Potential Return on Investment
Obviously, when considering an investment option, you need to consider the profit potential of that investment. That is, what profit you can realistically get, and compare it to the risk involved in the investment in question.
To have a basis for comparing different investments you need to calculate the risk / reward ratio, so you need to know the potential return for each investment you are considering.
Place of Investment
Even though access to investment has seen unprecedented liberalization in the last decade, there are still investments that are not easily accessible.
Physical location is important, for example if you want to invest in a hotel on the island of Bora Bora, this is not exactly handy if you live in Romania. Or if you are interested in investing in Chinese or Indian bonds, it may be difficult to find a broker to give you access to these tools.
A generally accepted principle in the investment world is that you need to have a diversified portfolio to reduce the overall risk associated with investment. In other words, don’t bet all your money on the same card. That is, don’t just buy Google shares, if you invest in stocks or just stocks in the high tech sector.
You need to determine from the beginning how long you want to keep your money in that investment. You need to know this detail so that you are not forced to withdraw your investment at an inopportune time because you urgently need the money.
One of the most important, if not the most important criteria for classifying investments is their duration. Thus we have:
- Long-term investments
- Short-term investments
Long-term investments refer to assets that mature in more than 10 years. This type of investment matures in this long period of time before their liquidation. Long-term investments can ensure the security of an investment portfolio. They have the ability to survive market volatility and bring good returns. That way, they are a safe way to invest your money.
A short-term investment or current asset is one that can be converted into cash in less than a year. Short-term investments contain assets that can be liquidated quickly and easily.
For short and medium term investments, you are mainly considering low-risk financial instruments with a guaranteed income. For long-term investments in the capital or real estate market.
If short-term investment refers to capital conservation, long-term investment refers to wealth creation.
It’s about building an investment portfolio that will give you income for later and for the rest of your life.
Let’s research which would be in the general sense the best investments in each category.
The Best Long Term Investments
Long-term investments can be extremely beneficial to your capital. However, you need to do specific activities if you want to make a profit from them.
You have to be patient. These are investments that need more than 10 years to mature.
You should also not be influenced by seasonal market fluctuations, be not scared and do not sell your positions in these investments.
The risk with long-term investments is that their value may decrease at some point. These are, of course, investments that have no guarantee of maintaining capital.
However, holding long-term investments offers the chance to recover the momentary decreases. And this works in your favor. Although an investment may fall by 20% in the next five years, it could double or triple in value – or more – in the next 10 years.
This is why you need to invest in the long term – in order to have a chance to recover the short-term declines in favor of long-term profits. But also to maximize the return on investment. Instead of selling a stock that has a 50% return in five years, you should hold it longer to get 100%, 200% or more.
These are the types of profits you can expect when you become a long-term investor. And there are a lot of investments that can do that.
There are different types of asset classes, with different levels of risk. Because there is no way to know for sure which gives you the best results or to avoid short-term declines, the best strategy is to invest in them all at once.
Investments need to be monitored. Use professional financial advisors to get the most out of your best long-term investment. Do your best to make sure your money works effectively for you in the long run.