“An investment in knowledge pays the best interest.” – Benjamin Franklin
Making a solid investment decision will be difficult for you if you don’t have any proper idea about what to invest in or how to invest in it.
If you ask professional investors, they might advise you to invest in real estate. The return on investment in real estate is pretty good, there’s no doubt about that.
Some other experts might also say that there are multiple other ways to invest your hard-earned money which can give you a return. The list will start from stocks, bonds, CDs and might end at gold investing.
Whatever path you choose, it’s not possible to put money in someone else’s hands so that he or she may give you a handsome return every time you want. How should you differentiate one option from another? More importantly, how can you judge when to avoid a particular investment option totally?
For this reason, it is important to compare real estate investment with other investment options and determine the best option for you.
Why Real Estate Investment Gives You a Better Return on Investment
“90% of all millionaires become so through owning real estate.” – Andrew Carnegie
When you start analyzing the available investment options for your investment portfolio, it will consider a number of factors. These are – the investment value, your risk tolerance, the return on investment, and the amount of control involved. Real estate represents a strong investment opportunity for those seeking to increase cash flow, save for retirement, and build a strong financial portfolio.
As per a 2017 study, professionals examined 16 different countries and their investment options. The rate of return on residential real estate investment was averaged more than 7% per year than other investment options. So, naturally, other options averaged less than real estate investment returns by 7%.
This study also revealed that a real estate investment is a very strong investment option for new investors. Real estate allows investors to gain profit in multiple ways.
After buying a real estate property you are actually engaging your fund in a physical asset that will appreciate in value over time. Real estate also gives you the opportunity to generate monthly cash flow through rental income.
Last but not least, through the real estate investment, you might have gotten the chance to control your investment portfolio directly. When you own a property, you have the authority to make essential changes there to improve its value.
Apart from that, you may choose a perfect time to buy or sell that property on your own. Being in charge of your own investment may give you the ultimate control over your own finances.
Real estate investing is one of the best investment options available for people who are searching for financial freedom. But if you really want to diversify your portfolio, you need to explore other investment options as well.
Now let’s check out other popular investment options and their characteristics.
“Wide diversification is only required when investors do not understand what they are doing.” – Warren Buffett
Apart from real estate investing, there are a few other popular investment options available in the market.
They are as follows:
- Stocks and Mutual Funds
- Savings Accounts
- Saving Bonds
- Certificates of Deposits (CDs)
Now let’s get a closer look at these options.
1. Stocks and Mutual Funds
One of the coolest ways to get a good return out of your investments is to focus on stocks or mutual funds that will give you a decent dividend payout.
Keep noticing if two of your stocks work exactly the same over a certain period of time, but one of them gives you more dividend and the other pays out nothing.
In that case, the former stock would be the perfect choice for you.
A safer option might be to invest in a dividend stock mutual fund. With this type of mutual fund, the fund company invests money by focussing on the stocks that’ll give you decent dividends and takes care of all related work.
You should also diversify your stock preferences so that one or two stocks won’t get all of your available investment.
2. Savings Accounts
A high yield savings account is one of the best risk-free options to earn good interest on your money. With a savings account, you’ll get a nominal interest every year if you keep your money as a deposit.
This investment option may require almost zero effort from the investor. The best high yield savings accounts also offer competitive interest rates with low or zero fees.
Make sure you choose a reputed bank who can give you quality customer service, easy access to your funds, and the latest online account management.
3. Saving Bonds
Investors may choose three types of bonds to work with – corporate, municipal, and government bonds. Investors earn revenue from the interest generated by bonds at maturity. Bonds are low risk, though the interest rates might fluctuate. The impact on the interest may be caused by the rate of inflation.
Many bonds aren’t taxed at the federal level, and entrepreneurs might face difficulties to find tax breaks. Later, the investors might have to pay income and capital gains taxes on any interest they earn.
4. Certificates of Deposits (CDs)
CDs are also another low-risk investment opportunity for investors. But they generate a lower profit margin compared to real estate investments. The profit margin of CDs depends on interest rates. Apart from that, CDs are taxed as similarly as bonds, and tax deductions opportunities are quite low.
Real Estate Investment Trusts or REITs give an opportunity to invest in real estate companies. Investors do not own separate property. Instead, they buy shares in real estate companies. REITs may offer dividends between 2% to 3% annually.
It is because REITs most of the time target relatively low yields to reduce investment risk. Proper real estate investment may give you much more profit, but with a high level of investment risk.
Annuities are insurance contracts that provide a regular income to the investor either immediately or in the future. The investor may buy an annuity so that he/she can grow or protect the retirement savings or set up a guaranteed income. Normally annuities are issued by an insurance company to protect you from the risk of irregular income.
Annuities are considered as complex financial instruments based on the terms and conditions of the contract.
The return on an annuity is fixed with a fixed annuity and sometimes is variable with a variable annuity. But you may also get your return with an equity indexed annuity.
If you’re about to deal with an annuity, however, be ready to embrace the risks. It is better to talk with a good financial advisor first.
Investing in gold is quite common in our community. Gold investors purchase a certain quantity of gold and sell it at a greater price. Compared to real estate investing, gold investment is a low-risk investment, but it will not give you as much return as a real estate investment might give you.
“Never depend on a single income, make an investment to create a second source.” – Warren Buffet
Apart from the real estate investment, other forms of investment might give you enough return so that you can increase your retirement savings and pay off your credit card debts. But, real estate investment may provide you cash flow that is directly related to your decisions.
Other forms of investment might depend on others. But being a real estate investor, you could make your own decisions, get a decent return, and manage risks on your own.
I hope after reviewing all the popular investment options above, you can choose your option for building a high-performing portfolio. You must consider all the benefits and loopholes in every option to make the ultimate decision. But as a whole, try to maintain as much diversification as possible to lower the risks.
This article has been contributed by Aiden White.