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Once a wise man said “Never depend on a single income. Make the investment to create a second source”
The wise man was no other than the American magnate and investor Warren Buffet, who was rated third-richest in the list of top 10 billionaires in the world by Forbes.
The global economic landscape has drastically changed its orientation from limited to vastly evolved. Today, we see the cryptocurrencies, the most trending concept of blockchain technology. This technology is capable of revolutionizing the financial world.
A few decades ago, there were very few options to consider before making an investment. But by the passage of time and increasing standards of living, people are more inclined towards increasing their wealth. For this purpose, you’ve to make investments. To make a wise choice about investing, you should be well aware of the options, and the returns of different assets.
It’s knotty for a common man to opt the best option because of little knowledge of economy and finances. Meanwhile, taking the guide from salesman increases the confusion only.
Additionally, the involvement of the financial field employ jargons that make a simple situation seems more complex.
In this article, we will discuss the insights into what are the best available options to invest your money.
Stocks
let’s start with stocks.
The stock market of any country is the reflection of its well being in the economy and indicates that companies are performing well which makes up the economy of the country. Stock prices show, in the long run, that how good the organization is performing in terms of profit, which then interpreted to the overall economic performance.
Despite the fact that there is a high-risk attached to this investment option, stocks are still one of the most popular investment options for Pakistanis. According to a report published in Tribune, The number of CDC accounts – the company where shares are deposited in Pakistan – has increased over the last five years.
Possibly, the attraction of significant returns outshines the extreme volatility of the market and lures people to it. However, it is necessary for investors to keep in mind the risk factor.
Here is how the market moves
The basic rule of the game is as simple as buy low, sell high. However, The concept of investing in the stock market is simple; buy low, sell high. However, figuring out the right time when the price is low enough to purchase the stock and when is the perfect time to book profits is the real essence of the game.
The market is very inconsistent to triggers in the economy. For example, if an international credit rating agency downgrades Pakistan, it is sure to have a negative impact on the market.
The internal factors such as deficient macroeconomic indicators and unstable political circumstances in terms of strikes or sit-ins are the common reasons to keep the market under pressure. Any external shock to the economy that in turn affects company’s operations will cause the share price to fall down as well.
Prize Bonds
Prize bonds are the most convenient and troublefree way to invest your money. They are not only hassle-free but also guaranteed by the government to refund if claimed by owner anytime.
There are a number of denominations of Prize bonds ranging from Rs100 to Rs40,000. This wide range allows people to make an investment even as smaller as Rs 100 unlike the other investment options that require the huge sum for better returns. These bonds can be bought from the State Bank of Pakistan, the National Savings Centre and some designated branches of commercial banks. Every bond has a serial number, based on which draws are held every three months.
If, for example, you have bought a bond of the Rs750 denomination, and fortunately, your serial number is selected in the draw, then you will be awarded a prize set by the government. In the case of Rs750 bonds, the first prize is Rs1.5 million, the second is Rs500,000 and the third prize is Rs9,300. The value of the prizes increases as the denomination increases.
Real Estate
Real estate is the most preferred and traditional way of investment. Majority of people in Pakistan prefer to invest in real estate sector if they have a significant amount of money to invest in property. The investments in this domain usually give stable and attractive returns. The mechanism follows the basic economic fundamentals – as the population keeps increasing and there exists a limited place in the world to live, the demand-supply gap remains.
Investment in real estate usually provide good returns but this form of investment demands a lot of patience because any profit made would be seen over a period of five to 10 years. Property gurus believed that people who have a mentality inclined towards conservatism, prefer property because they believe it as a stable asset. Moreover, the returns offered by the real estate sector over the past decade have shown significant profits compared to other alternatives.
Investing in real estate
For those who own a land or an apartment, and they aren’t using it, it’s best to rent it. Offering it on rent will win you a fixed monthly income, while the asset will appreciate in the long term.
Despite the fact that buying property in Pakistan is one the most hectic tasks but still it remains the most favorite option for many.
The country is already suffering from a severe shortage of housing that causes the sky-high prices. The lack of mortgage financing and conservative lending by institutions makes it even more difficult for a common man to build his own house.
However, from an investment point of view, real estate is still the most compatible domain with stable returns.
Currencies
The phenomenon of currencies is somehow similar to that of the stock market, their fluctuation is also linked with the economic situation like the stock market. In the case of currencies, they are two-way possibilities, either they strengthen or weaken against another. In past, only banks and companies invest in the foreign exchange market, but by the passage of time, the interest of individuals in this form of trading has increased and many are currently engaged with it.
Fluctuation of currencies is generally driven by demand and supply. Currencies with a high demand will have sky-high prices, while the opposite will lower it. However, demand and supply are determined by the economic developments and stability in the political front.
We all saw the recent rupee devaluation. For the longest time, the government held the rupee’s rate against the US dollar. However, last week, the state bank allowed the Pakistani rupee to lose 4% against the dollar, which led the rupee to trade at Rs115 in the inter-bank market. This was the second round after the rupee, in December 2017, lost 5% to the greenback.
Investment in currencies enlarges the risk factor but at the same time, it allows investors to balance their portfolio. Trading in currency also allows for a hedge against exchange-rate fluctuation, helping many institutions against any adverse movement.
Any development that impacts the global economy hint at a possible hike in the dollar essentially indicates the right time to buy the currency. Also, currencies trade in opposites, if one goes down the other will definitely go up. More or less similar to stocks, there is some volatility in currency trading as well. It requires caution and understanding of trends in the financial world.
Mutual Funds
If you’re one of the lazy lads who is not much aware of financial ups and downs and neither you bother to do any research for this regard, mutual funds are the best option for you.
Mutual funds are essentially a pool of savings that are managed by asset management companies. The Savings invested by the general public forms a mutual fund, based on an individual’s preferences, which offers a return after a period of time.
If, for example, someone is willing to invest but cannot spare a heavy sum, mutual funds brought different amount together on a single platform for investment. Later the returns are divided among all investors as per their share.
The advantage of mutual funds is that the risk is shared and there is a tax rebate offered on investments.
There are many forms of funds such as closed-end, open-end, high-risk, low-risk, fixed income fund or equity fund. It depends on an individual’s choice which option they choose. The higher the risk, the greater the return.
If you’re interested in investing in mutual funds, you can visit any asset management company and fill out the required forms. Then the cheque for investment is submitted, which the company gives to the CDC.
CDC is basically a trustee and has custody of the assets to avoid fraud and maintain checks and balances.
Gold
Gold is an ancient medium to buy and sell goods. It is the initial form of money. Gold is no longer used as the medium but it is still one of the option to consider to make an investment. Investment in gold is believed to be the secure investment by many. In times of crises, gold generally outperforms other asset classes. However, returns in gold are slow and it is generally seen as a long-term investment.
Eventually, we can conclude that the real estate is the finest form of investment in Pakistan because of good and progressive returns. However, the recent tax impositions by the government strike the market a bit, but prices did not fall in developed societies because of the healthy demand.
However, one should properly research before making an investment. Investment in property domain is expensive and not easy to liquidate. In such cases, exploring other options is crucial.