A few decades ago, smart people sitting with a lot of money used to know where they wanted to invest the money. Their problem was being able to invest the money quickly and efficiently. For example, if they wanted to invest money in the stock markets, they needed to call up a broker who would then charge them a fat fee, and the investment itself might happen the next day. In fact, it would take days to show up in the account. But since the start of the fintech revolution, these problems are non-existent. All investment avenues are available at your fingertips, literally. The number of investment options, too, has been increasing at an exponential rate. If you can imagine an investment scheme, it already exists — think of futures on the water as a commodity!
So in today’s age, the problem isn’t about the investment efficiency or delays but rather the choice of investment. Stocks? Crypto? Everyone’s heard of that. So we bring to you a few investment avenues which you might not have previously considered and compare them with some traditional avenues as well, analyzing the pros and cons on the way.
FX Trading
Forex, also known as foreign exchange or FX trading, is the conversion of one currency into another. It is one of the most actively traded markets in the world, with an average daily trading volume of $5 trillion. Previously only large banks and institutions participated in FX trading and monopolized all the profits. But with the rise of online platforms, more and more retails traders, people like you and me have been taking advantage of FX trading to grow their investments. There’s no fixed amount of return to be made here, and your profits would depend on how often and how consistently you trade, as well as your initial investment amount. If you are not too sure, you can always start with a small amount and increase your investment as you grow in confidence and profits too!
FX Robots
Since we were already talking about the fintech revolution earlier, here’s a live example of the same thing – FX robots! A forex trading robot is a computer program based on a set of forex trading signals that helps determine whether to buy or sell a currency pair at a given point in time. Forex robots are designed to remove the psychological element of trading, which can be detrimental.
So if you think devising a Forex trading strategy is too much effort or you don’t have the time to consistently trade in these markets, you can directly purchase an FX robot. Many software companies provide such service; hence as an investor, you have many choices to assess which FX robot is the best one for you. An investment in an FX robot is a combination of investment in FX trading and the most valuable asset – time!
However, one must be cautious about extraordinary returns from these robots. They are, after all, designed by humans and their returns are not very different from a trader devising her or his strategies. With the rising popularity of FX robots, companies are springing up overnight, offering FX robots with ‘guaranteed returns’ or ‘money-back guarantees.’ One should be careful while choosing an FX robot and invest in one with an established track record.
ETF investment
Exchange-traded funds or ETFs are among the most simple yet most effective investments in the financial world. In fact, Warren Buffet has long touted the S&P 500 ETF as an ideal investment option. ETFs are simply funds that very closely track an underlying asset. For example, the sole job of an S&P ETF fund manager is to provide returns exactly as the S&P 500. Since the job of the fund is pretty straightforward, they charge minimal fees and offer transparency in returns.
When people think of ETFs, they typically think of ETF tracking the S&P 500 or NASDAQ, but, in fact, ETFs are available on almost all popular assets such as gold, treasuries, and even Bitcoin! So if you have a conviction on any particular asset and you don’t want to go through the hassle of rebalancing or rolling your portfolio periodically, you can simply invest in the ETF, sit back and enjoy the returns at virtually no cost. Moreover, most ETFs are managed, but large well-reputed firms like Blackrock and Vanguard making them extremely safe when it comes to protection against any default or fraud.
401 (k) account
A 401(k) plan is a tax-advantaged, defined-contribution retirement account offered by many employers to their employees. There are two basic types of 401(k)s—traditional and Roth—which differ primarily in how they’re taxed. In a traditional 401(k), employee contributions reduce their income taxes for the year they are made, but their withdrawals are taxed. With a Roth, employees make contributions with post-tax income but can make withdrawals tax-free.
The returns on 401 (k) entirely depend on how the assets are allocated within the account. The common asset allocation is 60% to equities and 40% to debt. As we know, equities are the more aggressive investment option, and hence higher the allocation in equities, the higher the potential returns, although you also need to bear the risk of a down move. However, over time these moves are smoothed out, and if you hold the account over a long period, you can easily expect annual returns in double-digit.
Savings account
We would be remiss if we didn’t mention the good old savings account. While it might not be the most attractive or innovative investment, it has survived the test of time, which means it has some utility beyond returns. That utility, of course, is liquidity and ease of transfers. Traditional bank account transactions still form the bulk of our money exchange, and hence maintaining a ‘bank balance’ is critical. So while a savings account will offer a very low rate of return, it does offer safety and liquidity.
