Investing correctly is important for achieving financial goals. There are three things that you must consider while investing your first savings and they are:
• Risk appetite – Are you willing to risk a loss, or do you want an asset that will most certainly give you a positive return?
• Liquidity – Are you willing to part with your savings for a long-time, or do you want the funds to be easily accessible?
• Return expectations – What are your expectations on return from investment? There is always a trade-off between risk and return. You have to assume higher risk for a higher return.
Deciding where to invest your hard-earned money is a very personal decision. If you are looking for sure-fire ways to invest your first $10,000, and you are not looking at generating high returns, you might want to consider these. Read on.
Here are three safe investment options you can consider, in decreasing order of liquidity they offer:
1. Bank Fixed Deposits
A fixed deposit earns a specific rate of interest for a fixed duration. A fixed deposit gives a higher return than a savings account. While a savings account with a balance of $10,000 will earn interest of 0.01%, a 12-month deposit of the same value can earn 0.25%.
A fixed deposit offers you convenience and liquidity. It can be easily booked through your bank and withdrawn when the need arises (although most banks levy a small penalty if you break the deposit prematurely).
Bonds are issued by the government, government agencies, and companies. Bonds offer a fixed rate of return (usually referred to as the bond yield) after a fixed period. Government bonds are among the safest investments you can make. Yield on government bonds can vary between 1- 4% depending on the time horizon.
All bonds carry a certain risk by default. Bonds with the lowest risk of default (i.e. with investment grade AAA) will offer relatively low yields, than higher risk bonds. Yet, bonds are better than shares because a company must prioritize payment to bondholders over shareholders.
Most bonds do require a minimum investment of $100,000. However, you can still invest your savings (with a minimum investment of $1,000) in bonds through unit trusts such as the Supplementary Retirement Scheme (SRS) or the Central Provident Fund Investment Scheme (CPFIS). Do your due diligence and research before investing.
3. Single Premium Endowment Insurance
A single payment insurance plan offers the benefit of investing a single amount, along with certain insurance coverage. The money is invested for a fixed number of years, with guaranteed returns (2-3%), provided the policy is retained until maturity. Opt for this only if you are sure that you will not need the funds in the near future.
** BONUS ** One More Investment Option –> Equities
Just because you have actually taken the time to read this article, I want to quickly share one more investment option that you have to invest your first investment capital of $10,000 and that is by investing in equities or otherwise known as shares.
The great thing about equities is that you are buying into a part of a company and you can make money through capital gains when you sell the share for more than what you paid for it. And you can also earn a share in any profit that the company makes in the form of a dividend.
In order for you to make capital gain and dividends, it is very important for you to analyse a company, its business model, growth and valuation before investing in it. You will only profit from your investments when you make good analysis on the companies that you buy into. Click here if you wish to gain valuable skills and knowledge in investing in shares!
In my opinion, diversifying your investments is essential for a sound investment strategy. However, it still depends on your investment objective and also your risk appetite. Eventually, diversifying your risks and returns by owning a combination of high-risk high-return assets (shares) and low-risk low-return assets (government bonds) might be a good way to go. All the best!
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