When we talk about investing, we first need to define what we're talking about: an "investment" is anything you put money into with the expectation of getting more money out of it later. So anything which can increase in value can be an investment choice, from a painting that may become more valuable to collectors as the artist's fame increases to a share in a company that manages to grow its profitability over time. This distinction can be important in some situations: if you buy a car, its value will likely only decrease as you use it. Meanwhile, if you buy a vintage car and keep it well-maintained, its value on the collectors' market may increase over time.
All investment opportunities can be classified in one of the following categories:
- Lending: any investment with the goal of receiving interest over time
- Ownership: this includes both valuable physical objects as well as financial instruments such as stocks
- Cash and equivalents: highly liquid securities which are "as good as cash"
Let's take a look at the five most common investing options and determine which type of investor might benefit from investing in them.
Bonds are a typical form of lending; you loan your money to a corporation, a government, or other types of organizations and receive a bond in return. This bond entitles you to interest payments as well as repayment of the principal once the bond matures. In other words, you get a steady stream of income while you hold the bond, and once it matures, the money you originally invested is paid back.
This is usually seen to be a low-risk investment type, but the returns are also typically lower than other investment products. The main risk of bonds is that you may effectively lose money if you need to sell a bond before it matures, making this a decent option for investors who are certain that they won't need their money back before the maturity date.
Hedge Funds, ETFs, and Mutual Funds
Investment funds are designed to pool the money of multiple investors and invest it on their behalf. Funds may trade in a variety of different securities, from stocks to bonds. Notably, both exchange-traded funds (ETFs) and mutual funds are strictly limited as to which types of securities they can invest in, while hedge funds are free to engage in higher-risk strategies such as short-selling.
Funds are a great investment strategy since they use the combined capital of many investors to make more significant investments, which can create larger returns and decrease the collective risk. That being said, the fund will trade assets based on its core strategies and the fund manager's decisions, so you have no direct control over what the fund invests in. You can only choose to put your money into the fund or withdraw it, depending on how you feel about the current direction of the fund.
Real Estate and Collectibles
Perhaps the most "informal" way to invest your money, you can opt to directly purchase tangible assets, which may either increase in value or create a regular income. Real estate investors often buy land or real estate and either sell them when prices go up or refurbish and modernize them to increase their value. Likewise, objects such as vintage cars, paintings, or even baseball memorabilia can be bought and sold as collectors are willing to pay a lot of money for rare objects.
Real estate, in particular, is often seen as a safe investment, as housing is one of the fundamental necessities of life. However, as both real estate prices and rent have gone up significantly over the past decades, it is entirely possible that you may not find a buyer for your property at market price.
Old-school savings accounts can be counted as investments, as the investor effectively lends money to a bank to receive interest on that money. While this has been a staple of investment options for ordinary citizens for decades, interest rates are currently so low that you'll barely receive any returns from your investment.
Stocks and Stock Options
The stock market is the next logical step in many first-time investors' investing experience, right after savings accounts. Shares in a company's stock allow you to receive dividends from the company's profits, which means the better the company is doing, the more money you get out of your investment.
Stock options give you the right to buy or sell stock at a pre-determined time at a pre-determined price. In other words, if the price of shares goes up in the future, you can potentially buy them at a much lower price, which would allow you to sell them immediately at their current price and gain a return on your investment.
The stock market is generally considered to be riskier but also potentially more lucrative compared to other investment options open to ordinary citizens. They still won't net you the same high returns as hedge funds, for example, but they're a better option than simply keeping your money in a savings account.
Generally speaking, you should always strive to diversify your portfolio. Don't put all of your eggs in one basket, as the saying goes. For instance, you might want to try balancing high-yield, high-risk investments with ones that have minimum risk, even if these don't pay out much. For example, you could invest some of your money into stocks and some into government bonds. That way, the bonds will be comparatively safe and net you a regular income even if your stocks fall through, as is always a risk with the stock market.
If you qualify as an accredited investor, you should also consider investing in hedge funds. These are considered to be high-yield but risky investments, though effective hedging strategies can significantly decrease the risk. Your return of investment may still fluctuate as the assets which the funds invests in fluctuate. Hedge funds are ideal to supplement your portfolio with investment strategies that give you a high probability of gaining significant returns.
If you qualify as an accredited investor, you gain access to the world of hedge fund investing. And you should definitely consider adding hedge funds to your portfolio, as they are one of the few investment options left which still nets significant returns. That's because they are set up for absolute return, prospering both in bull and bear markets.
CARL's quantitative hedge funds, in particular, are a great way to diversify your portfolio and benefit in any market environment. As they are data-driven, algorithm-based alternative investment funds, they excel at making the most out of volatile markets in which traditional hedge funds might not be able to take advantage of every opportunity that presents itself.
CARL gives you access to the power of quants. Investing has never been easier thanks to 15%+ targeted returns, no lock-up period, and only a $20,000 minimum investment.