INVESTING 101: Understanding the Investment Landscape
Simply put, investing is about putting your money or resources into something with the hope that it grows in value over time, towards greater financial rewards.
How can you build such a portfolio that can pave your way to freedom? There are many asset classes you could invest in that will increase in value over time. Let’s discuss different asset classes and get to know how they increase in value over time.
#1 Gold:
Gold is the most valuable asset by market capitalization. As of just this past December, its market cap is 17.84 trillion dollars.
The average annualized return of gold worldwide from 2010 to 2023 has been 9.51%, beating the average inflation rate of 6%, which makes gold a noticeable and reliable investment.
Usually, gold prices increase in value, when the US dollar falls, and vice versa. This happens because when the dollar strengthens, the investors shift their assets from gold to other currencies, reducing the demand of gold and its price.
Gold is a good to provide your portfolio with a safety net.
#2 Silver:
Silver is the second largest natural asset class, ranked 9th in the top 10 most valuable assets with a valuation of $1.75 Trillion.
Unlike gold, silver’s value does not fluctuate with the ups and downs of the US dollar. There have been some years where silver has given negative returns and others where it has given crazy returns. Before investing in silver, think twice.
Due to silver being the best conducting metal, it is used in EV batteries, Solar cells etc. When the demand for silver rises in the industrial sphere, its price will boom. I personally believe that now is the best time to invest in silver as the demand is rapidly growing due to rise in EV and solar energy.
#3 Real Estate:
The most beloved and highest safety providing asset class is real estate which includes residential properties, commercial properties, agricultural land, industrial plots, etc. Different properties provide different rates of return as per the initial capital invested and the location of the property.
People like real estate more than any other asset class because of the ease with which passive income can be created by renting out a property and enjoying the monthly rent payment. In addition to the rental yield, property prices also increase as time passes.
#4 Equity:
In financial context, equity refers to the ownership interest in a company or asset after subtracting any liabilities.
When you buy a share of a particular company, that is growing revenue and reducing debt, the share price of that company increases. In order to find such companies, you need to conduct a fundamental analysis which includes reviewing any noticeable steps that impact the share price.
This level of research is not accessible for beginners, that’s when Index & Mutual Funds enter the game. The index funds are lists of companies that diversify your capital, reducing the risk significantly. ETFs (Exchanged Traded Fund) are similar to Mutual Funds but they are listed on the exchange which can directly be bought and sold just like stocks.
These are the four fundamental asset classes for investment. In upcoming articles, we will discuss others such as crypto and corporate bonds.
