The current death toll shows the extent of our suffering because of the pandemic. Although the WHO numbers do not quantify the economic devastation, we can feel that the world suffered an economic setback. Yet many experts say that it is an excellent time to invest.
You may be willing to do this because you scraped some extra dough from the government’s financial aid. But you might be asking where to put your money. With so many to choose from, deciding what to invest in will not be a walk in the park.
Let us help you. We can break the different options down to give you a better understanding of their nature. Here are a few investment choices that you should consider:
Replenishing your emergency fund or increasing it is an excellent way to use the excess of the stimulus checks. Keeping your reserves well-funded will prevent you from incurring additional debt during a crisis. As a rule of thumb, your funds should be worth at least 3-6 months of your current living expenses.
The pandemic-induced crisis taught us the importance of having an emergency fund. It will keep us afloat during times of hardship.
Many people see the emergency fund as a short-term investment. You should put your reserves in a regular bank account. Doing this will give you easy access to your money.
Let us move on to the medium-term investment. Unlike the regular bank account, the time or term deposit has a higher interest rate. It also has a preset maturity date. The most famous example of a time deposit is the Certificate of Deposit.
If you want to put your money away for a few months, you should choose the short-term time deposit. This type of time deposit allows you to lock your funds from one month to a year. Like any term deposit, you will be penalized if you withdraw your funds before the maturity date.
You can also opt for the advance notice term deposits. This type of time deposit will allow you to withdraw your money using the normal withdrawal form. But you need to give the bank a 31-day notice before you take out your funds. It has a marginally higher interest rate than the short-term time deposit.
Some banks offer another type of time deposit which is the interest paid monthly term deposit. In this type of time deposit, the bank will give you the interest that your funds have earned on a monthly basis. But the interest rate for this type of term deposit is significantly lower.
You may be hesitant to invest in real estate because this involves large amounts of money. The extra cash that you have gotten from the stimulus check may not even be enough to cover the down payment. But do not go away yet. You may start scouring for the best mortgage rates before this talk is over.
Due to last year’s economic downturn, mortgage rates have gone down. This bit of information should entice you to invest in real estate. If it did not, you must know that land does not depreciate. It is the only tangible, non-current asset that has this kind of characteristic.
This type of investment is capital-intensive. But it can be a source of passive income. It can be handed down from one generation to another.
Stocks, Bonds, and the Whole Caboodle
If you are looking for a long-term investment, you must research stocks, bonds, and foreign exchange. Stocks give you a share of the company’s ownership. From the company’s perspective, selling out its own stocks is what we call equity financing.
On the other hand, if a company issues bonds, it is what we call debt financing. When push comes to shove and the entity closes, the holder of the bond certificate will be prioritized over the stockholders. But the interest rate of bonds is slightly lower compared to preferred stocks.
Let us break this information down. There are at least three types of stocks. They are the common stock, the preferred stock, and the treasury stock. We will just focus on the first two.
The common stock is highly profitable. But at the same time, it is incredibly risky. Owners of Common stock also get voting rights.
Preferred stocks usually do not get voting rights. But their earnings are guaranteed. During liquidation, they also get priority over common stock. But their interest rate is marginally higher compared to bonds.
Understanding the basics of investment will help you make an informed decision. This knowledge will help you customize your investment to fit your needs. It will also lessen the risk of losing money.
Before you invest in anything, you must do a little research. If you are thinking of putting your money in a term deposit, you might want to check which institution offers the highest rate for the specified time. If you plan to purchase real estate, you must ask a banker what is included in your mortgage payment.