If you are currently investing in mutual funds or stocks, you already know by now that these are good beginner investments to put your cash into, instead of keeping your money locked in the bank.
These two investment types are considered as ‘safe’ and the profits are not as much.
However, when it comes to more profitable investments, Real Estate is one of the best out there that you can consider.
You have to remember that real estate investing is not for everyone though. For starters, there’s a significant difference in capital and in order to make money from it, you have to be proactive and you’re going to need a competent and reliable real estate broker.
But before we dig deeper to real estate investing, let’s get to know mutual funds and stock trading better and why we won’t advise you to settle on these types of investments forever, shall we?
According to Pinoy Money Talk:
“A Mutual Fund is a collective investment scheme where funds from a variety of investors are pooled together and invested by professional fund managers in various investments such as stocks, bonds, and money market instruments.”
Financial experts would often recommend mutual funds as a form of investment if you’re just starting. One of the main reasons why is that you don’t need entrepreneurial or trading skills, plus someone else will manage your money and trade for you.
You can open a mutual fund account with as little as P5,000. Basically, it’s like opening a bank account. You will be asked to submit Valid IDs, accomplished bank forms, and other documents that actually varies what bank or financial institution your investment will be hosted.
However, there are disadvantages also. Since this type of investment is on the ‘safe’ side, the earnings may appear mediocre to many. In addition, there is a limit on mutual investment size because it adheres to certain rules on how much an investor may own. This puts a ceiling on your ROI and trading capacity.
It’s also important to remember that mutual funds are not PDIC-insured. Meaning, there is this teeny-tiny possibility (but still a possibility) that you can lose everything.
Lastly, there are fees involved. You will have to pay your fund manager operating fees on a regular basis and a redemption fee when making a withdrawal. These fees are payable whether your investment yields profits or not.
Stock trading, on the other hand, requires a more active approach because you won’t have a fund manager. As an investor (or trader), you have to know the fundamentals and technicals in order to make profits, and of course the time to monitor your stocks’ performance. It’s not as simple as bidding for items on a penny auction site like DealDash but it’s also not as complicated as rocket science.
When you buy stocks of a company, you basically become a shareholder of that company – meaning one of the owners of that company.
To start, you will have to choose an accredited stock broker firm. Some online brokers offer initial trading amounts as low as P5,000. If you just want to test the waters first, 5k is not so bad as an initial investment.
With stocks, your potential income is higher too. As you are doing the trade, you will own a part of a company. You will also have an option to have dividend income which can fund your retirement and other long term investments.
However, if you will invest in stocks, you have to understand the fundamentals and techniques when buying and selling shares to minimize your chances of losing money.
For most people, the largest investment they have in their lifetime is their home. But this is not the kind of investment that will yield you income. And this is not the only Real Estate you can have.
Most often, income yielding Real Estate investors are large companies but individual investor like you can also go into Real estate such as building condominiums, apartments, duplexes or family homes for rent and a lot more.
Real Estate offers advantages over Mutual Fund and Stock Trading can boast and a lot more:
- Its diversification value is better than Mutual Fund and Stock Trading.
- It can provide you with a bigger return on your investments at a lower risk.
- Its value increases even in an inflationary environment.
- As a tangible asset, you have the power to enhance it to increase its market value.
But of course like other investment models, Real Estate has disadvantages too.
- It needs proper management that requires resources and time to ensure better ROI or income performance.
- It can be hard to acquire.
- Leasing or renting disadvantages. If you have no renter, you will have no income.
- It takes time to liquidate.
For more details about how to decide whether investing in real estate is right for you, check out our other post:
It gives you some pointers on what things to think about and consider before making up your mind. It’s a huge decision, so it should be thought over seriously.
On a final note, you don’t really have to focus on only one of them though. You can diversify your investment activities and minimize your risk, if that’s what can make you feel better and more safe about your money.
However, this way, you are also placing a handicap on your earnings potential. You are safe, but you will never get the maximum earnings potential of your investments.