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    Where to invest money for Passive and Long-term income – Complete Guide 2021

    Money must work and generate income – this is the basic rule of money. Advanced people will always look for where to invest money in order to generate income. There are dozens of areas, from conservative (bank deposits, real estate) to high-risk investments in new startups.

    What you need to know about investments

    It is advisable to immediately understand that there are no risk-free investments. Even bank deposits do not guarantee 100% safety of depositors’ funds. The state insures deposits, but only up to a certain limit.

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    There is an inverse relationship between the level of reliability and profitability. The lower the reliability, the higher the potential earnings and vice versa.

    Investments are time consuming, but they can be kept to a minimum. For example, with long-term investments in the stock market, it is enough to rebalance once every 3-6 months.

    Situations where investments grow by 10,000 +% over several years are an exception to the rule. An investor’s standard income is about 10-40% per annum when it comes to a balanced portfolio.

    Hence, intermediate conclusions follow:

    • Investing is a marathon, not a sprint . Don’t count on super profits over short distances. If you plan to invest money, for example, for a month, then the income will be appropriate;
    • Risks persist even in such conservative areas as bank deposits, real estate, treasury bonds;
    • There is an inverse relationship between profitability and risk.

    Keep in mind that income in money depends on the amount invested.

    Is it still profitable to invest in bank deposits

    From the point of view of reliability, a deposit in a bank is almost a 100% guarantee, but from the point of view of profit, it is far from the most profitable solution to the question of where it is better to invest money.

    To maximize income, it is advisable to open deposits for several years in highly reliable banks, subject to regular capitalization of interest – the interest accrued on the body of the deposit is added to it and in the next settlement period the already increased deposit is used as a base.

    This indicator depends on the rate of the central bank in a particular country, the lower the rate, the lower the profitability of bank deposits.

    In times of crisis, when central banks are switching to a policy of low rates, the profitability of bank deposits drops to almost zero. Taking into account annual inflation, the owner of the deposit may not earn anything.

    In Germany, for example, at the end of the 2000s of the 21st century, banks gave 4.0-4.5% on deposits. Then this indicator began to decline and by July 2020 reached 0.15%.

    If we take into account the annual inflation, then the investor will not earn by investing in this way. The rate may differ depending on the specific institution, but does not exceed 0.8-1.0%.

    Where to invest money – stocks

    The stock market is attractive because there are no restrictions on profitability, there have been cases with 1000% profitability per year. But if you collect a diversified portfolio, it turns out that the average annual profit is about 15-40%.

    Due to the possibility of diversification (reducing risks through portfolio investments), stock market instruments are ideal for preparing long-term investments.

    The most time-consuming and difficult part is deciding which stocks to invest in so that they generate income. When drawing up an investment portfolio, one has to take into account the performance indicators of companies, study their reporting, prospects. You also need to diversify at different levels (sectoral, by country and other criteria).

    Exchanges do not work directly with clients, so you will need to open a dedicated brokerage account. We recommend choosing only regulated and reliable brokers with many years of experience.

    Short-term trading can be much more profitable than passive investments, since when trading it is possible to fix profits on local price fluctuations, that is, to make money on each rise and fall separately.

    Invest a little money in bonds

    A bond is a fixed income debt instrument. Working with them, the investor actually lends money at interest. The role of the borrower can be both the state and individual companies.

    1. For each security, the face value is set – the initial value;
    2. The bondholder annually receives a coupon specified in advance by the issuer . The coupon is calculated as a percentage of the face value;
    3. On maturity, bondholders receive the par value of the securities.

    Moreover, bonds are traded on the market. They can be bought at any time through the same trading terminal as the shares of the companies.

    How to invest in startups

    This category of investments is high-risk. A startup can take off and make early investors millionaires in a couple of years, but it can also fail if the product is not in demand.

    One of the options for investing in startups is directly. Literally meet with its authors, get acquainted with the idea, market analysis, determine the terms of investment. This option is working, but not for everyone – you will have to conduct a personal analysis, hire lawyers, invest a large amount of money (investing $ 100- $ 200 will not work).

    • Another drawback of this approach is the need to independently search for promising startups and analyze them. You need either a team of analysts or experience in this area.

    This is a good investment option to increase your investment in a short time. As for risks, due to portfolio investment they are reduced to acceptable values.

    There are many examples of startups that have provided thousands of percent growth in start-up investments. For example, a $ 10 invested in Uber after the development of the project could turn into $ 100,000 +, Zenefits grew 360 times in 2 years, and Amazon grew 260 times in a decade.

    Most of the startups bring either a loss or near-zero results, but a couple of projects that have “fired” cover the resulting loss and bring the overall result to a plus.

    Investments in investment funds

    The concept of an investment fund is quite extensive, it includes ETFs (we discussed them above), mutual funds (mutual funds), hedge funds . You can invest in each of these investment funds.

    An ordinary investor cannot work directly with such giants as Berkshire Hathaway . You cannot sign a contract directly with Warren Buffett and give him $ 5,000- $ 10,000 to manage . Funds of this caliber operate with amounts of a different order, their clients are large banks, and the size of assets under management is estimated at hundreds of billions of dollars.

    But this is not a problem, if you plan to work with investment funds, buy their shares . This direction is suitable for both earning monthly income and compiling a growth portfolio.

    ETFs were discussed in more detail above. Their main advantage is that they are ready-made investment portfolios by default. The largest ETFs by the amount of attracted assets – SPDR S&P 500 (SPY), iShares Core S&P 500 (IVV), Vanguard Total Stock Market (VTI), Vanguard S&P 500 (VOO), Invesco QQQ (QQQ), iShares Core US Aggregate Bond (AGG ) . Collectively, these ETFs operate over $ 1 trillion in assets.

    If you are interested in specific managers, you can invest in them, but you will have to do this indirectly. The same Warren Buffett has a reputation as one of the best investors on the planet. You can buy Berkshire Hathaway shares , their growth directly depends on the actions of the company’s management.

    How to invest in precious metals

    Precious metals are not limited to gold, this group includes silver, platinum, palladium. Usually they do not give high profitability, but in times of crisis they can grow by tens of percent in a short period of time.

    For example, in 2020, due to the situation with the coronavirus pandemic and its impact on the planet’s economy, the cost of gold increased by 43.25% in six months.

    here are a lot of options for investing in precious metals :

    • Purchase of gold and other metals in bullion. The option is convenient from the point of view of psychology because the gold is physically located with the buyer. But it needs to be stored, and accompanying documentation will also have to be kept. Another drawback of the method is VAT (in some countries it has not been canceled) and the high difference between the purchase and sale prices of bullion;
    • Buying investment coins. The method is more popular than working with ingots due to the absence of VAT on purchases; other disadvantages are the same as for buying ingots;
    • Opening of unallocated metal accounts (OMS). Analogue of a foreign currency bank deposit, but instead of currency, the account balance is calculated in grams of precious metal. Due to the high difference in the rates of buying and selling metal, the method is not particularly profitable. Compared to bullion and coins, OMC is convenient in that physically the investor does not have to work with precious metal;
    • Buying jewelry. For small amounts, the method is not suitable, cheap jewelry is made of low-grade metals, their value as a work of art is also questionable. It makes sense to buy jewelry from famous masters, but they do not differ in low price;
    • Purchase of shares in gold mining companies. The profitability of this instrument can outpace the growth in the value of precious metals;
    • Buying ETF shares in precious metals. ETFs in this category are of 2 types – for real gold or other metals and for securities of mining companies. The principle is the same as when buying metal directly or working with stocks, but all operations are performed through the trading terminal.

    Precious metals are a good solution to the question of where you can invest your money. But this instrument is characterized by periods of long stagnation. The stock market, in comparison with precious metals, gives a smoother growth curve of the deposit.

    Investing in cryptocurrency

    The history of Bitcoin speaks to the potential of this type of investment. If in 2009 it is not worth a cent, then in less than 10 years the price of 1 BTC token reached $ 57,000+. There are other impressive examples too, like Ethereum surging 83,000% in just over a year.

    The easiest way to invest in cryptocurrency is to buy the required tokens on a cryptocurrency exchange. All that remains is to withdraw them to your cold wallet (for large amounts, it is better to use hardware wallets) and store them pending an increase in the value of the token at a distance.

    There are also investments in the so-called blockchain ETFs, which include shares of companies working on blockchain technology. This is an option for indirect investment in cryptocurrency. Examples of such ETFs are Amplify Transformational Data Sharing, First Trust Indxx Innovative Transaction & Process, Reality Shares Nasdaq NexGen Economy .

    Cryptocurrency is a highly risky direction. It attracts with impressive examples of growth in the past, but there is no guarantee that this will happen again in the future.

    How to Invest in Private Lending

    We are talking about P2P lending , in which people directly lend to each other. This is beneficial to both parties, the borrower can get more favorable conditions, and the lender is completely passive income. Another advantage for the borrower is that the credit history is not taken into account.

    For a lender with little capital, this is an opportunity to invest money for passive income with high interest rates.

    For the organization of peer-to-peer lending, special platforms are being created. They act as an intermediary, ensuring that the parties fulfill their obligations to each other. The pioneer in this area was the British company Zopa ( zopa.com ), which began operating in 2005.

    Today, P2P lending platforms operate in dozens of countries. At the same time, the scheme of work remains approximately the same:

    • Both the borrower and the lender are registered on the site, providing data about themselves;
    • Both parties can submit their proposals, they will be anonymous in the general list. Personal information is not disclosed;
    • When issuing a loan, the lender receives money instantly. At the same time, the site has its personal data, which guarantees the fulfillment of its obligations. For mediation services and the site takes a commission from the loan issued.

    For small amounts, lenders charge high interest rates; as the loan grows, interest on it decreases. At the same time, the risk of fraud on the part of borrowers remains, for example, registration with forged documents and non-repayment of loans.

    Examples of such sites are Peerform, LendingCLub, Upstart, Prosper, Funding Circle .

    Trust investment

    Trust management (Trust) means the transfer of assets to a third party. A DM agreement is drawn up, it describes the rules of interaction between the parties, the manager’s remuneration and other details. At the same time, there are no guarantees that management will be successful, therefore this format is called trust management.

    The manager’s remuneration can be fixed, but more often it is calculated as a percentage of the profit received. Above, we have already considered various forms of remote control, such as PAMM accounts or copying transactions. BCS, VTB, Sberbank have similar proposals.

    It makes sense to draw up an individual agreement only if the investor is going to transfer a large amount of money to management. For small investments, it is better to choose a simpler version of the control system in the form of PAMM or invest in ready-made investment products, which are offered by many brokers.

    Investing money in an MFI

    Borrowing from microfinance organizations is a surefire way to pay huge interest on debt. But MFIs can also be viewed as an investment option.

    Microfinance organizations issue loans at interest rates exceeding bank ones, so they lend not only their own funds, but also investors’ money.

    Investors in MFOs can receive up to 30-40% per annum. As in other cases, you will have to pay personal income tax from income, this can be done through the same MFI.

    The entry threshold is quite high, it depends on the specific MFO, many set the threshold at the level of 1-1.5 million rubles. To increase the reliability when choosing an MFO, it is advisable to limit ourselves only to organizations that are included in the state register of MFOs and have been operating in the market for at least 2-3 years.

    There are microfinance organizations associated with banks, their reliability is higher compared to independent companies that provide loans to the population.

    Investing in your own business

    Quite an extensive category, there are dozens of examples on the Internet when people, doing what they love, became millionaires. But your own business is not only a source of income, but also big risks.

    It is trite at first glance, but this point is worth considering in more detail, because a business may be small, but capable of generating additional income with the prospect of development.

    There are many ideas for starting your own business, you just need to sort out and find something rational for yourself.

    You can buy materials and get someone with a creative education to collect gift sets.

    • Buy hot goods in China and sell them in bulk;
    • Set up a photo booth in a busy place;
    • Create a trampoline room;
    • Grow carnivorous plants;
    • Make a mirror maze (minimum costs for a room and one employee);
    • Open a carpet cleaning studio (two employees).

    The main advantage of business is the ability to solve problems with employment and finances.

    To reduce risks, it is advisable to invest only a part of available funds in business. The best way is to create a safety cushion from investments in other areas (stock market, debt instruments, trust management). They should not be time-consuming, but they should generate additional monthly income or a platform for capital growth.

    Crowdlanding

    Crowdlanding was officially recognized in the Russian Federation after the adoption of the law “On attracting investments using investment platforms” and its entry into force on January 1, 2020.

    Crowdlanding or p2b lending is the issuance of loans to small businesses by individuals using Internet sites as a link. Therefore, the first name consists of two English words that translate as crowd and platform, and the second is an abbreviation for person to buisness (from a person to business).

    Urgent investments are usually needed by entrepreneurs who have recently opened, or deprived of bank lending. Individuals are paid a significant percentage on these invested funds, but the risk of loan defaults is also very high. Internet sites acting as an intermediary do not bear any obligations to the borrower. But, receiving a percentage of the transactions made, they are interested in investors and therefore take measures to reduce the number of defaults:

    • Credit scoring;
    • Distribute funds of a private person to various borrowers;
    • They issue loans secured.

    An investor who wants to invest his thousands in crowdfunding, before starting to work with any site, it is advisable to find out whether its activities comply with the norms specified in the law.

    Under the normal course of events, crowdfunding can bring the lender from 30 to 50% per annum for loans to individuals, and from 15 to 20% – to small businesses.

    How to invest in collectibles

    The collectible value of an item is determined by the following factors:

    • Historical value. If an ordinary table was owned, for example, by Napoleon, its value increases by an order of magnitude in comparison with an ordinary table of the same age;
    • The name of the author is especially important in relation to paintings, sculptures, ornaments;
    • Date of manufacture;
    • Manufacturing quality.

    There are no strict criteria by which some items can be added to collectibles, and others not. This category includes pedigree stallions, wines, jewelry made of precious metals, paintings by famous masters, rare coins of numismatic value, cars produced in limited editions. And where it is profitable to invest money – it all depends on the budget and the capabilities of the investor.

    For example, for collection wines, you need to organize storage conditions, the same applies to paintings and other objects. A couple more constraints – a high entry threshold, as well as low liquidity.

    Invest in your own website

    On the Internet, you can earn not only through direct investments, but also through your own website. Earning is possible due to:

    • Delivery of advertising space on the site;
    • Link sales;
    • Working with advertisers directly. For example, do reviews of various products;
    • Resale of the site in the future. If you have the skills to promote the site, you can bring it to a good traffic and sell it.

    For example, this site makes money on good affiliate programs (companies that we work with ourselves), Google Adsense.

    As for financial costs, a simple site, for example, on WordPress, can be created on your own, even with zero knowledge. The main problem will appear later – the site needs to be regularly filled with high-quality content and promoted. This will become the main expense in the future.

    Competition is high, if in the search results the site is on the 2nd search page, the flow of unique visitors will be low.

    Investments in self-development

    The option is suitable for specific development goals in certain directions.

    Self-development means:

    • Getting new skills. This means both professional development in the current profession and mastering a new one. Self-education is also possible, but paying for courses saves time, and this resource is irreplaceable;
    • Work on the physical condition. This affects productivity and ultimately affects finances;
    • Work on the psychological component.

    The purpose of the investment is to increase your value in the eyes of the employer, on the basis of this you can demand an increase in salary or find a position with a higher salary. In most cases, this investment pays off.

    Basic investment rules

    1. Do not use money that is needed to pay bills, food or the loss of which will lower your standard of living.
    2. Do not invest all the money in one project or industry, for example, buy 6 shares of different companies, but they will all be in the robotics industry.
    3. Investments don’t have to be spontaneous. You also need to have a loss plan so you don’t make decisions based on emotions.
    4. It is undesirable to succumb to the crowd effect. Your own analysis is a priority, expert advice can be used, but they should not become the basis for making decisions.
    5. Have an understanding of the sector where you are going to invest.
    6. In advance, you need to form an adequate attitude towards the return on investment. There will be no immediate result.
    7. You don’t need to invest money for the sake of investment. If there is no attractive option yet, the decision is postponed to the future.

    The rules are simple, if you follow them, the probability of losing money will be reduced to a minimum.

    Where not to invest money

    Below is a list of areas that are too risky for novice investors. It’s better not to mess with them, at least at the beginning of the path:

    • Active trading – technically, the procedure for making deals is simple, but market analysis takes time, and emotions make it difficult for beginners to trade. Most newbie traders lose money;
    • “Garbage” shares ( penny stocks, cent shares ) – got the name due to the low cost of securities;
    • High Coupon Bonds – A high yield indicates a high risk of default by the issuer. Increasing coupons are used in critical situations when it is necessary to attract funding by any means;
    • Highly profitable Martingale Expert Advisors – show impressive profitability on history. In real time, sooner or later they go into a deep drawdown and drain the deposit;
    • Ruble – while the Russian national currency is at its lows, there is a temptation to transfer free funds into it and make money on corrections against the dollar and the euro. But practice shows that deep kickbacks do not always happen, while the ruble retains a tendency to weaken, because this is beneficial for the state’s export policy. Japan has been working on this vector for half a century, increasing interest in its products.

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