The Top 10 Financial Products

The pandemic has proven to be a driver of an economic shutdown. It has gone to show that a somewhat stable economy can turn into shambles. And who are the most affected? The ones who did not invest. What investing does is that it can help you get through a rainy day. So, what do your investor relations say about the second half of 2021? Where should you invest?

Let’s explore.

Founding premises of investment

Diversification

The idea here is that investors should have a mix of safe and riskier investments. The chances are that you have come across the phrase, ‘do not keep all your eggs in one basket.’

Risk versus Reward

The second premise is that the safer avenues (sovereign bonds, for example) have lower potential returns. But they also have lower risks. On the other hand, financial instruments set out for astronomical returns (equities) come with higher risks.

Ten financial Products that investors should look at

1.    High-yield savings accounts

Online savings accounts that pay interest on the cash balance fall under this category. The difference between the online and the brick-and-mortar versions is that the latter entails much higher overheads. Hence, with an online savings account, you can earn much higher interest rates. What’s more, you can access the funds by transferring them to the bank or through an ATM. This avenue is best suited for risk-averse investors.

2.    Certificates of Deposits

Often abbreviated as CDs, these are issued by banks and generally offer a higher interest rate than savings accounts. These CDs are federally insured, which means that investors get capital or principal protection. Also, they come with specific maturity dates, making them time deposits. In a CD, financial institutions pay interest at regular intervals. The drawback is that investors cannot withdraw money before maturity unless they pay the penalty. These are ideal for retired individuals or those who are in no need of immediate income. Note that CDs come in several forms. So, do your due diligence beforehand to find the one that fits your needs.

3.    Government bond funds

Such types of funds invest in debt securities such as T-bills, T-notes, T-bonds and mortgage-backed securities issued by the government. These are ideal for investors with a low appetite for risks. Also, they are excellent for newbies and those looking for cash flow. Another point to note here is that bond funds are both long-term and short-term. The former are more susceptible to fluctuations, owing to changes in interest rates.

4.    Exchange-Traded Funds (ETFs)

Abbreviated as an ETF, it tracks an index, sector, investment strategy or asset. With ETFs, one can build a diversified portfolio using relatively small amounts. It is tradable, which means investors can buy and sell it just like regular stocks. What’s unique is that it is structured to track a particular parameter. These are suitable for young investors with small funds to invest. What’s more, since these mimic an index or asset, they are a relatively safe starting point.

5.    Mutual Funds (MF)

MFs are a financial vehicle that is curated using a pool of money collected from many investors. This pool then invests in stocks, bonds, money market instruments and other assets. These are operated and managed by professional money and wealth managers. The fund portfolio is created, structured and maintained keeping in mind the investment objectives of the investors. Mutual funds come in various forms and cater to people across the risk and reward spectrum. For illustration, equity mutual funds are ideal for those seeking higher returns. Debt funds are best for those seeking capital safety. Balanced funds, which fall under the moniker ‘hybrid funds’, are best for those with a moderate risk appetite.

6.    Dividend stock funds

Dividend-paying stocks offer a safety net! Dividends are payouts, usually quarterly, made to investors from company profits. Dividend stocks enable investors to gain from long-term market appreciation and short-term cash payments. Individual stock investments are ideal for intermediate and advanced investors and those with a higher risk appetite. With this, you can buy a group of stocks through stock funds to reduce overall risks.

7.    Equity instruments

A.    Preferred Stock

These are hybrid securities that have the characteristics of bonds and stocks. They guarantee dividend payments, meaning that they offer the income potential of bonds. What’s more, investors get the ownership and appreciation potential of common stock. Preferred stocks have lower returns and risks than common stocks.

B.     Convertible bonds

Another equity instrument is convertible bonds. These are debt instruments that provide investors with an option to convert to shares of stock. With that said, these comprise both debt and equity elements.

8.    Rental

These are ideal for those with the willingness to manage properties. However, considerable time is involved in property selection. After that, you can purchase it outright and then rent it out to tenants. The rental payments offer a stream of regular income. Nonetheless, do prepare yourselves for 3 a.m. calls about dysfunctional pipelines or connections.

9.    Real Estate Investment Trust

Often abbreviated as REIT, it is an investment company that invests in income-producing real estate. The real estate properties are tradable like stocks. The company operates like a mutual fund. The investors pool together capital for purchasing shares in commercial real estate.

10. Cryptocurrency

Cryptocurrency is a digital and electronic-only investment avenue. What’s unique is its dual status – it is both a currency and a commodity. For this reason, it has received considerable flak, especially from banking and financial institutions. Nonetheless, it has become a prevalent avenue among the investing public. The popular ones are Bitcoin, Etherium and Dogecoin.

Parting Words

There are several financial products out there, including global funds, futures, and forex. Whatever be your go-to and final choice, make sure it aligns with your risk tolerance levels and investment objectives. Note that there is no one-size-fits-all. The investment world is continually evolving. So, do your due diligence before investing. If need be, do seek assistance from professional wealth managers and financial analysts. It is your hard-earned money, so make it count.