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add an advertisementThese are difficult times, characterized by an unfavorable economic situation. On the other hand, however, the pandemic has also created opportunities on the investment market that are worth considering.
The most important thing to consider when choosing how to invest your surplus funds is risk awareness. This is an inherent part of investing, and the level of risk varies depending on the type of investment. If we want to minimize the risk, we have to accept that the profits are unlikely to be very high. The principle of the capital investment market is that the higher the risk, the higher the probability of profit. The way capital is invested depends on the individual approach of the investor and the acceptance of the level of risk. Either way, it is worth learning more about the different forms of investing in the capital market, as it is economically unwise to keep savings when you can just as easily trade and multiply them.
Before describing the different forms of investment, it is worth mentioning a few useful rules for safe and effective investing.
Firstly, it is a good idea to set aside regular amounts every month for investments, which in the long term will have a positive effect in the form of significant capital that can be invested. After just a few months, the funds may be large enough to be worth investing and multiplying.
Another useful rule for getting a good return on investment is to limit the involvement of intermediaries. If an investor chooses the right financial instruments themselves, they can reduce costs and increase profits as a result.
It is also advisable to avoid investments that are difficult to get out of. One of the most important things in investing is the exit plan. If you do not know how and when you can get your money back (with or without profit), you should not invest in such an investment. For example, you should not lend money at interest if you do not know when it will be repaid, nor should you buy rare works of art, bottles of wine or collector's items if they are not easy and liquid to trade.
What is the best investment?
1. Dynamic bank deposits.
Of course, the simplest form of investing is to put money aside in a time deposit. This is a very good way to accumulate cash for larger investments. Paying regular amounts into a sub-account specifically created for this purpose will require consistency, but as a result, a larger amount saved will allow for proper investment and obtaining an adequate rate of return (because with current interest rates on bank deposits, you should not expect too much profit).
Bank deposits are also one of the most convenient ways to invest, as they require almost no knowledge. Deposits can be easily compared with each other, and it is simple to set up a deposit. You also know in advance when it will expire, so you can invest any financial surplus in this way, even a temporary one.
When deciding to invest in this safest form of investment, it is also worth analyzing it in terms of conditions, optimal period and preferential interest rates. It is also worth checking every month whether it is profitable to change your deposit or bank in order to maximize profits. It is also worth noting that transferring a deposit to a new bank will often mean a higher interest rate for the so-called new funds.
2. Investing in bonds
The second, widely known way of investing is through bonds. It is worth taking a closer look at government bonds in particular. They are a relatively safe form of capital investment and protect investors from inflation. You can also buy them every month for small amounts of money and regularly increase your portfolio.
Treasury bonds can be purchased at PKO BP bank branches, online and by phone. After a certain period of time (e.g. 3 months) from the date of purchase, an amount equal to the value of the bonds plus interest due is credited to the investor's account. The nominal value of treasury bonds is PLN 100 or a multiple thereof. The State Treasury also offers six-year and twelve-year Family Bonds with a more attractive first annual interest period compared to other bonds. However, it should be remembered that only beneficiaries of the “Family 500 plus” program can purchase them.
If an investor is willing to accept a slightly higher risk in exchange for a higher rate of return, it is worth considering investing in corporate bonds. The largest companies issue bonds quite often, and the yield on them is higher than on government bonds. The disadvantage of this form of investment is that it is somewhat more difficult to exit the investment than in the case of government bonds.
Even if you want to invest in financial instruments with a higher rate of return, it is advisable to keep a certain percentage of your investment in bonds for security reasons. This is especially true if the investment time horizon is long-term.
3. Investment in your own company
Another, more expensive way is to open your own company or buy shares in an existing corporation. In this situation, profits are spread over several years, and the initial amount to be invested is usually over 100,000 PLN. With this form of investment, it is also worth remembering to choose a growing industry and with little competition in the products or services offered in the company's assortment.
In the case of investments in operating companies, the financial results and growth potential should be carefully analyzed, and it is worth buying a majority stake, because then we have a real impact on the management of the company and the payment of potential dividends to the owners.
In addition, the so-called costs of entering a given industry (e.g. licenses or other barriers) must be carefully analyzed, and nowadays the effects of a pandemic in the industry of interest must also be taken into account.
This form of investment is aimed at creative and consistent people, and with the right effort and good organization, it can mean significant financial success, which will multiply the initial capital.
4. Investing on the stock exchange
Another type of investment is investing on the stock exchange. The principle is based on simple patterns: buy low, sell high. Investing on the stock market does not involve any secret knowledge available only to brokers. If an investor is systematic and persistent in pursuing a goal, and chooses cold calculation instead of being emotional, he or she can turn out to be a good “player”.
Before opening a brokerage account and investing funds, it is worth familiarizing yourself with terms such as business cycles, bull and bear markets, the rules of buying and selling shares, and other issues described in books and materials for investors.
The stock market can mean profits for investors of up to several dozen percent per year, but the risk with this form of investment is relatively high.
5. Investment funds
A good and relatively safe way of investing is to purchase investment fund units. Many banks allow you to purchase them online – all you have to do is log in to your personal account and then place the appropriate order. In this case, the investor can also demonstrate regular savings and purchase more units every month. In addition to the security of the investment and the possibility of investing even small amounts, another positive feature of this financial instrument is the relatively easy way to exit the investment.
Moreover, a big advantage of funds is their diversity and diversified portfolio. Investors do not need to know about stocks, how to buy raw materials or foreign bonds. They simply choose the right fund and can already have a package of securities from every region of the world and of every type. They can also choose funds representing investment strategies appropriate to their level of risk acceptance (bond, hybrid or equity funds).
Of course, investing in different types of assets through funds carries similar risks to investing in these assets yourself. However, funds protect investors by averaging out the risk – by investing indirectly in dozens of different securities rather than in a few.
The key point to consider when investing in funds is the fees. The rule of thumb is that the more fees, the worse. The rule that funds with higher management fees are better than those with lower fees does not apply here, because in that case the profits often get eaten up by the excessive costs.
6. Cryptocurrencies
The popularity of cryptocurrencies is growing with technological developments. A few years ago, they were very popular with ordinary people, and everyone had heard of investors who had made a lot of money with them. However, after the best results in 2018-2019, we are increasingly hearing about the problems of this form of investment.
Buying and selling cryptocurrencies takes place on an exchange, where you can trade your own cryptocurrencies. There are many ways to assess the reliability and quality of an exchange, such as liquidity, fees, purchase and withdrawal limits, trading volume, security, insurance, and user-friendliness.
The most popular cryptocurrency is Bitcoin, but there are several thousand other cryptocurrencies, which are referred to as “altcoins” (alternative coins, including Ethereum, which is considered the “little brother” of Bitcoin). There are companies on the internet that act as intermediaries in trading these types of investments, but it is worth considering that the risk of this form of investment is high.
Even though Bitcoin has become popular again over the past year and has made headlines again due to its significant increases, it should still be considered one of the riskiest investments in 2021. Why? First and foremost, cryptocurrencies carry a huge legal risk. One new law or regulation can lead to problems in this market.
7. Currency trading – the FOREX market
Forex is a wholesale currency market where banks, large international corporations, governments, central banks and institutional investors from all over the world carry out currency exchange operations 24 hours a day using telephone networks, computer links and information systems. The advantage of this market is its high liquidity, which means that selling or buying any amount of currency at any time is not a problem. So-called Forex traders use volatility to speculate, enabling them to make a profit regardless of whether the exchange rate is rising or falling. To invest in this market, you need to choose a brokerage house through which you can play the Forex market. Interestingly, brokers often give beginners the opportunity to play with virtual money so that they can “test themselves” in this form of investment and learn the rules without taking any risks yet.
However, one should be aware that the entire market is largely based on speculation and is therefore unpredictable. In addition to extraordinary profits, it can also bring investors severe losses.
8. Investments in precious stones
In Poland, diamonds are the most popular gemstones. In Western Europe, on the other hand, colored gemstones (such as emeralds, rubies and sapphires) are more popular. Before deciding whether and which gemstones to add to your investment portfolio, it is worth learning about their characteristics and properties, how to recognize them, and which of them are most valued on the investment market.
The value of colored gemstones is primarily determined by the intensity of the color. It often happens that rubies and emeralds that contain inclusions but boast a strong, distinctive color fetch higher prices than specimens without impurities but with a weak color.
Gemstones can be bought at wholesale jewelry and gemstone dealers, specialty shops and auction houses. The Polish Mint also has a wide selection. The difficulty for investors may be the difficulty in selling them, the long waiting time for a buyer and the individual valuation for each (natural) gemstone. The high entry barrier is certainly a problem. It is a type of investment that requires a lot of start-up capital. Some analysts say it is a proposition for the wealthiest investors. Gemstones can also be treated as a capital investment and an asset that stabilizes the portfolio during a crisis and financial or political turmoil. Undoubtedly, the growing demand for jewelry is a plus for investments in gemstones. Sales of valuables and gems are growing, reaching 5-10 percent annually.
It is also worth mentioning that this is a form of investment that requires consideration and caution from the investor, as the gemstone market often deals with stolen, counterfeit or black market products.
9. Investments in precious metals
Precious metals such as gold and silver have been used as money by people since the dawn of civilization. These metals were selected as a medium of exchange through elimination in a free market.
We can buy real precious metal bullion in the form of bars or coins. It is not common to invest in scrap gold, jewelry or numismatics (collectible coins). Although these types of products are also traded on the market, none of these options are investments, but rather are for consumption or hobbies.
A bar is simply a cast form of a given metal, with the mint's symbol, weight and the so-called fineness, i.e. the “purity” of the bullion, stamped on it. A bullion coin, on the other hand, is a coin that has neither a nominal value nor a collector's value. Its only value is the value of the metal used to produce it, plus the marginal cost of casting the coin itself. In summary, this form of investment requires a long-term perspective of value growth because price fluctuations in this market are relatively small.
10. Real estate investments
Many studies have shown that investing in real estate has been the best way to increase capital in recent years. This is due to interest rates, which have remained at record lows for a long time.
By investing money in real estate, the investor earns on the one hand from the increase in the value of the apartment or commercial premises over time, and on the other hand from the monthly rent. Neither of these sources is certain, but the prospect of future profits encourages many people to invest their capital in real estate. Profits from this form of investment usually range between 7-10% and vary depending on the specifics of the property (flat, holiday apartment, commercial premises, warehouse or land).
However, it should be remembered that investing in real estate also involves risk. Finding a tenant can take longer than expected, and the sale of an apartment or premises can be protracted. In addition, for those who finance the purchase of a property with a mortgage, an increase in interest rates will result in a reduction in rental income, while a period without a tenant means incurring fixed charges and loan repayments.
11. Investing in new technologies, applications and IT companies
This is quite an interesting form of investing, but it requires a good knowledge of the market. There are industries such as IT or the currently very popular “gaming” industry that are very popular among investors. The main thing here is profitability. You can also invest by injecting capital into a start-up or by buying shares in a larger company. It is worth remembering that the new technologies sector is not only about inventions related to smartphones, tablets or the internet in general, but also about all kinds of advanced technical solutions and the latest scientific discoveries. Nowadays, when new technologies have entered everyday life, investing in this sector is very profitable.
Of course, you need money to invest in this way, but in fact, knowledge and creative ideas are the most important, and when choosing this form of investment, you should be guided by the experience of the management team and the innovativeness of the idea.
12. Investment in the form of a corporate loan
This is simply lending money to private individuals (investors) and companies seeking capital for development. There are many funds offering the possibility of lending money to companies for a fee. Despite the initially high risk, the profit is usually guaranteed and often secured by a mortgage on the borrower's property and a promissory note. The loan contract usually specifies the interest rate (usually between 6% and 12%) and the loan period. This form of investment, in which a loan is granted to a company for a fixed period of time, requires an analysis of the company's economic situation, a business plan and a detailed definition of all conditions in the contract. Loans can be granted in the form of a loan agreement or an investment agreement.
It is very difficult to predict the actual profitability of different types of investments. In order to optimize the risk and benefits resulting from changing market conditions, it is recommended to diversify savings and maintain several forms of investment.
If you have a large amount of money, it is a good idea to invest in safe forms such as real estate, but you can also choose forms that can bring higher rates of return. Such a strategy will ensure that the capital is stable and liquid at the same time and will bring good returns. When choosing different forms of capital investment, it is important to remember that quick decisions are never helpful when it comes to building substantial assets and protecting savings. When expanding your investment portfolio, you should carefully consider your own capabilities and investment risks.
The year 2020 will go down in history. The coronavirus pandemic has triggered significant changes in consumer and business trends not seen since the Great Depression. However, there are likely to be more and more ways to invest in the near future. Regardless of everything, it must be made clear that any investment is a good idea when it brings satisfactory returns and is adequately protected against the loss of invested funds.
