Investing can be a great way to build our wealth over time, and investors have a range of investment options, from safe lower-return assets to riskier, higher-return ones. That range requires us to understand the pros and cons of each investment option and how they fit into our overall financial plan in order to make an informed decision. While it seems daunting at first, many investors manage their own assets. But the first step to investing is actually easy: opening a brokerage account. Investing can be surprisingly affordable even if you don’t have a lot of money. To enjoy a comfortable financial future, investing is absolutely essential for most people. As the coronavirus pandemic demonstrated, a seemingly stable economy can be quickly turned on its head, leaving those who weren’t prepared for tough times scrambling for income.
Currently, the economies are struggling through high rate of inflation. So, what are the best investments for investors to make this year? One idea is to have a mix of safer investments and riskier, higher-return ones. Investing can provide us with another source of income, e.g. funding retirement. Above all, investing grows the wealth. It helps us to meet our financial goals and increase our purchasing power over time. It’s a wise decision to let that money work for us.
While investing can build wealth, you’ll also want to balance potential gains with the risk involved. And we wanted to be in a financial position to do so, meaning we will be needing manageable debt levels, have an adequate emergency fund and be able to ride out the ups and downs of the market without needing to access your money.
There are many ways to invest — from very safe choices such as Certificates of Deposits (CDs) and money market accounts to medium-risk options such as investment bonds, and even higher-risk picks such as stock index funds.
Factors to keep in mind
There are several factors we have to keep in mind while making decisions about Investments. If we are looking for a growth in wealth, we can opt for lower-risk investments that pay a modest return, or we can take on more risk and aim for a higher return. There’s typically a trade-off in investing between risk and return. Or we can take a balanced approach, having absolutely safe money investments while still giving yourself the opportunity for long-term growth.
Risk tolerance
Risk tolerance means how much we can withstand when it comes to fluctuations in the value of our investments. Are we are willing to take big risks to potentially get big returns? Or do we need a more conservative portfolio? Risk tolerance can be psychological as well as simply what our personal financial situation requires.
Time horizon
It’s important that your investments are calibrated to your time horizon. Time horizon simply means when we need the money. Do we need the money tomorrow or in next 30 years? Are we saving for a house down payment in three years or are we are looking to use our money in retirement? Time horizon determines what kinds of investments are more appropriate. If we have a shorter time horizon, we need the money to be in the account at a specific point in time and not tied up. And that means we need safer investments such as savings accounts, CDs or maybe bonds. These fluctuate less and are generally safer. If you have a longer time horizon, we can afford to take some risks with higher-return but more volatile investments. Our time horizon allows you to ride out the ups and downs of the market, hopefully on the way to greater long-term returns. With a longer time horizon, we can invest in stocks and stock funds and then be able to hold them for at least three to five years.
Timely Information
Our knowledge of investing plays a key role in what you’re investing in. Investments such as savings accounts and CDs require little knowledge. But market-based products such as stocks and bonds require more knowledge. If we invest in assets that require more knowledge, we will have to develop our understanding of them. For example, if we want to invest in individual stocks, we need a great deal of knowledge about the company, the industry, the products, the competitive landscape, the company’s finances and much more.
How much to invest
There is a famous sayings “Don’t put all of your eggs in one basket”. This means do not invest all the amount at one place. Now question is how much can we can bring to an investment? The more money we can invest, the more likely it’s going to be worthwhile to investigate higher-risk, higher-return investments. If we can bring more money, it can be worthwhile to make the time investment required to understand a specific stock or industry, because the potential rewards are so much greater than with bank products such as CDs.
Investment Opportunities in Pakistan
High Inflation can erode the purchasing power of the money stashed in low-risk investments over time. By understanding the different factors involved in both short-term and long-term investment plans in Pakistan, we can help us to decide for the right option. .
Short-term investments come with minimal to no risk; we would not lose any amount of our principal. They are usually highly liquid, so we have full access to our money whenever you may need it. However, the safety of such investments comes at a cost.
They come with lower returns than those from investments associated with a higher level of risk. The choices for investment options are also limited. , for instance, you would not be able to buy stocks as they are riskier assets.
In contrast, higher-risk investments offer the potential for much higher long-term returns. If the aim is to protect our capital and maintain a steady flow of income, short-term investments are the more appropriate option. If we are looking for growth opportunities, high-risk investments can bring in more attractive returns
Gold
As the Pakistani rupee continues to free fall against the dollar, gold has emerged as a particularly safe asset to invest in. Currently the Gold prices is Rs. 141900/- per tola in Pakistan. It is predicted that gold prices will continue to rise as a hedge against inflation. Hence, investing in gold biscuits can generate promising returns. This is also a better option than silver since silver prices have remained unchanged in the current economic cycle.
Forex Trading
Forex trading refers to the trading of different currencies. Forex trading is also a great investment opportunity because of its convenience and ease. Study the trends in currencies, keep yourself updated with the latest currency rates and financial situations, and try to invest accordingly. The current exchange rate against US$ is Rs.228.42.
Real Estate
Real estate is one of the most popular and widely-used opportunities. People can buy property, especially the land. Over the years, the price of real estate appreciates. It can then be resold when it commands a much higher price.
Keep a track of the market prices and sell the property when the prices are at their peak. The biggest advantage of real estate investment in Pakistan is that it is a safe investment option. We can get total ownership of the property and, most importantly, the land is an asset where the price always increases. If we cannot afford real estate on our own, we can even buy a property in installments through loans or a partnership with other people. However, one drawback of this investment is that it may take time to gain returns. So, for a short-term investment, it would not be feasible.
Stock
The Stocks ranks high among good investment opportunities in Pakistan. The Pakistani stock market recently claimed its highest profits in 10 years. Currently, the number of shares are 178.40 Billion, with value of shares tuned up to PKR 5.00 Trillion / USD 24.21 Billion with a total Net Assets in Custody with Trustee & Custodial Services are PKR 1.45 Trillion / USD 7.02 Billion.
Though risky but taking stocks as investments is still a best option.
Usually, the pricier stocks have a higher risk attached to them but they also yield high ROI. If we do not have any prior knowledge about the stock market, try hiring a broker.
Banks and Investment Companies
This is one of the cheapest business opportunities in Pakistan with low investment. Open a bank account and deposit a small amount in it. Start investing in the account every month. Banks usually offer 10% to 12% annual returns.
Treasury Bonds
Treasury bonds are a safe investment option with a fixed rate of interest that is paid in phases until the bond’s maturity. The steady returns can help offset the unpredictability of equity prices.
The Government of Pakistan issues treasury bonds starting from merely Rs. 100/-, with a current yield of 13.271%. These bonds can be used as a substitute for cash. Student bonds are one of the safest and easiest investment ideas for students in Pakistan.
Since bonds are guaranteed by the government, there are very low chances for any inefficiencies or risks in the payouts.
Savings Account
A savings account is an excellent option for people who do not have huge upfront capital. It is an appropriate money-saving opportunity for people such as students, elderly people, housewives, and children
A savings account is a basic type of bank account that allows us to deposit money, keep it safe, and withdraw funds, all while earning interest. Savings accounts are offered by most banks, credit unions, and other financial institutions that are insured by the FDIC (Federal Deposit Insurance Corporation).
We need to simply open an account, deposit small amounts of cash every month and earn returns on your savings. There are many esteemed banks that offer a monthly investment plan in Pakistan.
The biggest advantage of a savings account includes minimum financial risk or loss. If we are looking for low-risk investment opportunities, we can take this option into account. The return on investment that we get may be less compared to other options, but at least our money will be secure and we will not have to incur any financial losses.
The author, Nazir Ahmed Shaikh, is a freelance columnist. He is an academician by profession and writes articles on diversified topics. Mr. Shaikh could be reached at nazir_shaikh86@hotmail.com.