In today’s world, where inflation is high and savings are low, long term investments are the only way to accumulate wealth. Tying up your savings for a long time comes with its fair share of risks but there is no shortage of investment options. Let’s talk about three most popular investment options that tend to give you the maximum return on your investment in 2023. So naturally, we won’t be talking about Cryptocurrency.
Real Estate
The Good
Whether you're eyeing that charming suburban home or a sleek office building in the busiest business district, real estate has some compelling reasons why it's considered a good investment option. And hey, you get to play monopoly for real! Let's break it down:
Stability and long term appreciation: The real estate market tends to remain stable and appreciate in value over time. Depending on the area you purchase your real estate in, as time goes, development of the area and introduction of new amenities, drives up the value of your asset. Here is an example. A 4800 sq ft plot of land that you bought in 2006 for a net total of 2.3 lakh Rupees, is now worth upwards of 64 lakhs in 2023, because now there is an expressway passing adjacent to the plot. This rise in value is due to two reasons: connectivity and the added benefit of using the roadside property as a warehouse.
Tangible Asset: You can see it, you can touch it, you can stand in the middle of it and you can use it to throw the biggest party the world has ever seen. The security that comes from the ownership of real estate is because of its tangible nature, unlike stocks and crypto, where your assets are tied up in lines of computer code.
Income Potential: Real estate investment opens up a source of passive income. The return on your investment is supplemented by a rental income, should you choose to become a landlord of your residential or commercial property. In case of commercial properties, you have the added benefit of longer lease terms as compared to residential properties. There is no shortage of options when it comes to how you can put your property to use. If you are the new owner of a swanky commercial property, here at Prop Returns, we will help you navigate your way through the game.
The Bad
Investing in real estate is like being in a long term relationship, where you give a lot, to get a lot and most of your romantic nights involve fixing your tenant’s plumbing and sealing in a broken countertop. Let’s talk about the disadvantages of investing in real estate.
Maintenance and Upkeep: Properties require continuous maintenance, and unexpected repairs can quickly eat into your budget. Whether it's a leaky roof, a malfunctioning HVAC system, or a termite infestation, the costs of upkeep can be unpredictable, substantial and at times uneconomical. The cost associated with maintenance of a property is something that should be ready to be taken up by the owner because it is the most important factor that retains tenants.
Vacancy: For every day that a property is vacant, the owner loses out on income. This is especially true in case of a commercial property. There is no guarantee that a new tenant is ready to move in after the previous one exits. The layout of your office might be unique and not fit the needs of your future clientele. This is why owners need to be prepared to face the risk of down-time on their investment.
Way too tangible: Confused? Don’t be. As mentioned before, real estate is a tangible asset, with a physical real world presence. However, this adds to its disadvantages. It can be incredibly difficult and time consuming to liquidate real estate, should the need arise. Moreover, there is no guarantee of getting a fair market value against your asset. Sure, if you hold on to your investment for long enough, you will get a significant return on your investment, but it might not be anywhere near the fair value of the property. It all depends on the urgency of your sale and the need of the buyer.
Stocks
The Good
Stocks, the exchange rodeo where bulls and bears try to outdo each other, and the rest of us are just trying not to get trampled. It's a place where acronyms fly faster than the latest meme, and watching your portfolio can be more suspenseful than the World Cup finale. Investing in stocks can offer a range of advantages for investors looking to build wealth and achieve financial goals. Here are some key advantages of investing in stocks:
Potential for High Returns: Historically, stocks have provided some of the highest long-term returns among various asset classes. While individual stock prices can be volatile, over time, the stock market tends to trend upward, offering the potential for significant capital appreciation.
Liquidity: Stocks are highly liquid assets, meaning they can be easily bought or sold on the stock market. This liquidity provides investors with the flexibility to adjust their portfolios quickly based on changing market conditions or investment goals.
Long-Term Growth Potential: Stocks have historically shown the potential for long-term growth, outpacing inflation over extended periods. For investors with a long-term horizon, stocks may provide an opportunity to build wealth and achieve financial goals.
The Bad
You can potentially make millions, or lose your shirt faster than a magician in the middle of a hurricane. It's a gamble and only the brave (or foolhardy) should dare. Investing in stocks is a bit like online dating. You pick a promising prospect, swipe right on a tech stock, only to find out it's more interested in ghosting you than making your portfolio glow. Here are some risk associated with investing in stocks:
Emotional Impact: The emotional toll of stock market fluctuations can be significant. Investors may be tempted to make impulsive decisions during market downturns, potentially resulting in selling at a loss or missing out on recovery opportunities.
Market Timing Challenges: Timing the market is notoriously difficult. Investors may struggle to accurately predict the best times to buy or sell stocks, potentially missing out on opportunities or exposing themselves to losses.
Information Overload: In the age of information, investors can be bombarded with news, analyses, and opinions, making it challenging to filter out noise and make informed decisions. The abundance of information can contribute to decision paralysis or impulsive actions.
Gold
The Good
Gold, the OG bling of the investment world. Rappers had it right all along. It doesn't rust, tarnish, lose value when damaged or call you on a Sunday to complain about a leaky tap. It's the ultimate hedge against inflation, or as some like to call it, the original Bitcoin – only shinier. Here are some key advantages of investing in gold:
Inflation Hedge: Gold has historically served as a hedge against inflation. When inflation rises, the purchasing power of currency tends to decline, but the value of gold increases because there is less of it floating around the market. Although gold is not as rare as we once thought, its controlled supply on the market is what gives it value. This is called controlled availability. The same holds true for other precious materials like silver, platinum and diamonds. As a tangible asset, gold can help preserve wealth in times of rising prices.
Liquidity: Gold is a highly liquid asset. (“BUT IT’S A METAL!!!”, I see you typing.) It means that gold can be easily bought or sold in various forms, including physical gold (coins or bars), gold ETFs (Exchange-Traded Funds), and gold futures contracts. This liquidity allows investors to quickly convert gold of any shape and form into cash if needed. It is incredibly easy to quickly determine the purity of the gold being exchanged and this metal can be used as a fungible token to quickly cash out or mortgage. Also, gold is small and portable, unlike real estate. You can, with some effort, carry a brick into a bank and exchange it for the fair market value in cash, whereas real estate might take weeks or even years to sell and you might have to go through several hurdles while doing so.
Global Acceptance: Gold is recognized and accepted as a valuable asset worldwide. Pirates used to wear gold earrings that could cover the expense of a funeral, if they died on unknown shores. Its universal appeal makes it a liquid and easily transferable asset across international borders, providing investors with a globally accepted form of wealth. Especially in places under conflict and dubious economy, gold is recognized as a fair form of exchange. All you would need is a small weighing scale.
The Bad
Remember, gold isn't a magical golden goose you can use to accumulate wealth. Leave the dream of diving into a vault full of coins like Scrooge McDuck at the door. As ironic as it may sound, gold might not be the luxurious asset to hold on to as it is made out to be. Let's talk about the not-so-golden side of this investment:
Time: Investing in gold is like watching paint dry. It's slow, it's steady, and it's about as exciting as watching grass grow. Sure, you might see some appreciation over time, but don't expect to get rich quick. Unlike stocks, where value appreciation depends on market trends and current affairs, for example, stock price of Boeing and Lockheed Martin blowing up by a whopping 11% because of the current ongoing conflicts, gold has no such qualms. Gold remains unaffected by market trends and rises in value very slowly.
Security: There is always a security risk associated with owning a movable physical asset like gold. From thieves to children thinking it’s chocolate wrapped in foil, gold attracts anyone who wants to get their hands on it. Since there is little to no loss in value when melted down, theft of gold is remarkably difficult to trace. This is an asset that is very easy to lose and track down.
Sunk Cost Fallacy: While your gold is sitting there accumulating dust like the treadmill you bought, other investments like stocks or real estate could be growing like weeds. So, by investing in gold, you might miss out on other opportunities that could potentially make you more money in a shorter period of time.
Final Thoughts
In the end, whether you go for real estate, stocks, or gold, the most important thing is to diversify your money across different assets. That way, when one investment makes you cry, the others can at least offer a sympathetic pat on the back. One setback of today is an indulgence of tomorrow. The key is patience and coming up with your ideal scenario that would best help your investment.
Ultimately, the best investment is the one that fits your personality and risk tolerance. So do your research, talk to a financial advisor, and choose the option that makes your inner investor do a happy dance. And remember, investing should be fun! So go out there, conquer the market, and maybe even buy a tiny island with your profits.
