In a reality where there are many different investment options – from shares, through bonds, investment funds or real estate, to investment bullion and alternative investing – every investor faces the difficult challenge of choosing an investment strategy and appropriate instruments by analyzing their advantages and disadvantages. For those who are just wondering how to start investing money, we have prepared a complete investment guide that will help you build an investment portfolio from A to Z. On the other hand, for investors who have already taken their first steps on the market, it will provide practical tips and inspiration to make even better decisions when it comes to various investment ideas.
Real Estate
Observing the market in recent years, it can be concluded that investing in real estate is probably one of the best recognized by people with capital assets. This is probably due to the fact that real estate is relatively easy to understand when looking at other ways of investing in more complex instruments. In addition, years of “money deterioration” (permanent inflation) combined with credit support programs have caused real estate prices to steadily rise, confirming many in the belief that this is an investment on which you cannot lose. How to invest money in real estate? As in the case of the forms of investment mentioned so far, also in the real estate sector we can implement various strategies, i.e. engage in residential real estate for rent (very popular in Poland), commercial real estate, real estate trade (e.g. buy – renovate – sell at a higher price), trade in building plots, agricultural land, garages and parking spaces, and even invest in monuments. Interestingly, it is also possible to invest in real estate without having a large capital, because there are also real estate funds available on the financial market (the so-called REITs – more popular abroad), in which individuals can invest funds in the same way as in shares on the stock exchange. In addition to changing the prices of such participation units, we are also entitled to receive dividends from the rental of real estate.
Cryptocurrencies
Investing in cryptocurrencies is a relatively young form of capital allocation. The most popular cryptocurrency has become Bitcoin, which began trading in 2010, and gained fame thanks to gigantic price increases, which quickly attracted queues of people willing to buy it. Each investment is characterized by the fact that the price for very high rates of return is volatility, so the more we want to earn, the higher the risk of loss we have to accept. Or to put it even more simply: there is no profit without risk, every investment is burdened with it. Hence, in this short, dozen or so years of Bitcoin’s history, there was no shortage of corrections of up to 80-90%, which led to the bankruptcy of less experienced investors, buying after strong increases, not to mention using e.g. a loan. The success of investing in Bitcoin quickly translated into the implementation of further cryptocurrency projects. While Bitcoin’s success was from the beginning based on a limited supply (21 million) and full anonymity, now the number of cryptocurrency projects is already in the thousands, and the acquisition of Bitcoin by a cryptocurrency exchange in terms of personal data verification is starting to resemble setting up a brokerage account.
Investment in precious metals and bullion
An investment in bullion – primarily a precious metal such as gold – is an investment in safety. Although investment in gold and silver is the most popular among investors, some go a step further and also turn their attention to metals such as platinum and palladium. Are precious metals the answer to the question of what to invest in the long term? Why are they perceived as a safe investment?
It is worth starting investing in precious metals with the safest asset, and therefore characterized by the lowest price volatility, choosing to buy gold, and more specifically deciding on the move of investing in gold coins or bars. The general rule is that investing in gold in the long term protects us against a decrease in the purchasing power of the currencies we use every day. If we go back decades, we can see that very often the prices of many goods (a family car, a square meter of an apartment, a barrel of oil) expressed in gold are similar to today. The general rule is that investment gold is not meant to make us rich, but to preserve the value (purchasing power) of what we have accumulated so far. In addition, when stored in physical form, similarly to other investment metals, it makes us independent of the risks associated with the financial system. So, how to invest in gold? As a rule, the best solution will be to invest in gold bars or coins, which we can always have with us.
Anyone who is no longer unfamiliar with investing in gold can take a look at silver, which is characterized by greater volatility, which is already a much more industrial metal. Investment demand for this metal is about 20%, while the remaining part is accounted for by sectors such as electricity and electronics (including electric vehicles and photovoltaics), automotive, photographic industry and jewelry. Conscious investment in silver generates the need to focus on its industrial applications (and forecasts of deficits or surpluses), but it is worth being aware of the fact that in the event of some serious turmoil in the monetary system, in the case of silver, its monetary role will certainly come to the fore and then the investment will be similar to investment in gold.
Platinum and palladium are other precious metals that are attracting the interest of a growing number of investors as a long-term investment of capital. The undoubted benefit of investing in these metals is that they also protect us against counterparty risk (you cannot take them away, disable access), but in terms of price volatility it is even higher than in the case of silver. The demand for these metals is created predominantly from the industry, with an emphasis on the automotive industry and also with a focus on vehicles with conventional combustion engines. In recent years, there has been a sharp decline in the prices of platinum and palladium, so as a long-term investment, they seem to be in a very interesting place right now.
Investment in raw materials
An equally interesting asset class is investment in raw materials, with which the aforementioned precious metals are strongly associated. In most cases, investing in raw materials will be based on a financial instrument that gives exposure to the price of a given raw material, or companies operating in a specific industry (e.g. mining, exploration). It is worth mentioning that investing in raw materials often has the opposite characteristics to investing in shares. While a bull market in the stock market lasts quite a long time and its corrections can be very rapid, in the case of raw materials, prices can remain very stable for a long time (e.g. in a situation of a balanced balance of supply and demand), after which one event (supply disruption, unsuccessful crops, sanctions) will cause an immediate, strong increase in the price. Commodities, due to their high volatility, are therefore high-risk assets, but of course there is also room for them in a well-composed portfolio. Especially since they are currently historically very cheap in relation to, for example, the stock market, which should even out in the coming years.
How to invest money safely? Diversification.
How to invest money to reduce the risk of an investment slip-up? Is investing money in only one asset a good solution? The lack of diversification of the investment portfolio increases the risk of making a slip-up. For this reason, more and more investors – both experienced and those who are just taking their first steps in the financial markets – reject the practice of “putting everything on one card” and decide to invest their savings in various asset classes. Proper diversification allows you to limit financial losses in a situation where one or more components of the portfolio fail, because as a rule, the rest compensate for losses by bringing profits or at least maintaining their value.