It is not a hidden secret; you required to invest in any instrument that should have ability to grow your money along with time and economy growth. It is also true that, any debt instrument like bank fixed deposits or fixed interest rate company deposits never give such returns. Here, I am introducing you four investment instruments to select and invest with long term focus to grow your money along with time and economy move.
In the world of investing, fixed interest rate investment instruments like bank FD’s are big loser for long run. It doesn’t have the ability to yield enough returns along with time and economy changes. Its rate always fixed and whether the economy is down or shooting up spontaneously, your return rate will be same. I my own word, FD’s are dead investment products for young investors. It is always suitable for a person who have no risk taking capacity or someone who is near to his pension age or a senior citizen.
If you are young and early planner of your finance for critical goals like retirement, higher education, you should select the well yielded investment products carefully. Below are the four recommended products and its ranking to meet the investor goal:
RANK 4 – Real Estate
Investments in real estate properties not only yield huge profit in long run but, it also able to beat the inflation.
The possible disadvantage is, when the economy face any recession, the prices of real estate commonly come down. If you badly looking foe money at that time, you may be a loser by not getting the right price and yield.
RANK 3 – Diversified Mutual Funds
Well managed and diversified mutual funds are another best option to your portfolio. This has ability to grow your money from the growth of selected companies as well as provide limited protection to your capital by investing a part of corpus to the selected debt instruments.
Possible disadvantage is, the portfolio selection depends on the fund manager and there is no guarantee on the fund performance that will continue intact in the future. There are possibilities for fund manager changes, fund manager inability or mistakes on decision making. This kind or errors can hugely effect your investments. If you are the one still prefer diversified mutual funds, diversify your investment with multiple funds from different fund houses than preferring a single fund from single fund house.
RANK 2 – Direct equity Investment
Long term focused direct equity investments by purchasing the stocks of well managed and excellent companies will certainly yield you amazing returns in a long run. There is no doubt.
The major disadvantage is the selection criteria. Direct equity investments required lots of efforts from investor side to research and identify good companies. There are various considerable factors associates with each research. It is really a time consuming process.
An investor should have good awareness on what and where he has to research and the timing of buy and sell.
A process of monitoring and re-balancing portfolio in time is a must requirement to yous as a direct equity investor. This will enable you to avoid laggards and add proper candidates to your portfolio. The pain behind such perfect monitoring involves tracking the performance of invested companies along with any major news updates. As a common investor, our knowledge may be not sufficient to do such and there will be enough room for error and miss the right companies. You can fix this error by approaching a well experienced stock adviser but various risks and limitations still alive.
…and THE WINNER IS – Index Exchange Traded Funds (Index ETF)
Index Exchange Traded Funds are number one in this category because of its enormous ability to bring your money with the economy and time. As you aware, growth of an economy directly correlated to the growth of industries and companies in the nation. Index funds by its nature, tracking particular stock market indexes by investing equal proportion of its entire corpus on each company listed in that index. When the company grows and the economy, your money also grow with it.
Developing economies has lots of room for investors to get huge benefits through investing in index funds which tracking the index of elegant companies in the nation. The only drawback of index funds are it is not an investment instrument for short or mid term but required long term focused investments. All the risks associated with the companies in the index also applicable to the index funds.
By nature, index funds have passive management and less chance to lose your money from fund manager inability or mistakes. Investor can purchase the index fund units directly from stock market using there trading account facilities. Standard brokerage charges and transaction tax applicable for each purchase.
There are several mutual fund houses offering index fund schemes in the market but, I always prefer and advise investors to go for an index fund which is listed in the stock market as ETF. As I mentioned above, this will protect your money from fund manager mistakes and inability through its passive management nature, low tracking errors, less entry load and easy liquidity to get your money back compare with mutual funds.
The best approach to invest in the Index fund ETF is the Dollar Cost Averaging method. Using Dollar Cost Average, you are purchasing the units of index fund units for a fixed amount in a particular day of each month. This will truly protect you from the volatility of stock market as well as provide the benefit from compound interesting.
In my experience and opinion, you should subscribe a good index fund from the first day of fixing your goal to get maximum benefit directly from the economy and the time.
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