Understanding Different Investment Vehicles: Stocks, Mutual Funds, property and cryptocurrency

There have never been more options for investors looking for ways to grow their wealth. Stocks have always been the obvious choice for investors, and for many years the only easily accessible way for individuals to leverage their funds to build wealth. However, other options like Mutual Funds and Property are more easily accessed, with fractional property investment allowing smaller investors to gain a share of large property projects that would otherwise be out of reach. The advent of cryptocurrencies and associated technology has opened up a new world for investors too.

But with each investment vehicle offering a different combination of risk and reward, time to profit and other variables, knowing which is the right option for you can seem like an impossible choice. If you are looking to invest and grow your wealth, a financial planner can help you build a diverse portfolio to take best advantage of these different investment opportunities. However, it is important that you understand what each offers, so we will look at each in turn.

Stocks

These are perhaps the most familiar type of investment vehicle existing today. Stock represents a share of the ownership of a company, divided into shares that are traded on stock markets. Buying shares in a company sometimes brings with it benefits such as dividend payments, a proportional share of profit payments from the company for all shareholders, but the most effective way in which they help grow your wealth is through increasing in value.

You buy five shares of a business at $10 each. In six months, they are worth $11 each. In two years, they could be worth $30 each. When you eventually sell, the difference between the price you paid and the price you sold is profit. Your wealth grew by that amount. This example sees $20 a share profit for 5 shares, which may not seem much. But if you had a thousand shares, it is. There is no more work in profiting from that thousand shares either, you just need to invest more money.

Not all companies go up in value all the time though, some fall dramatically, which would reduce your wealth, so there is risk. The key to this investment is choosing the right companies to invest in. Professional guidance is incredibly useful here, and certainly something we would recommend.

Mutual Funds

Mutual Funds leverage most other types of investment vehicle to grow the money invested into them. Investors deposit money into the fund, which is then pooled with funds from other investors. The idea being that with more funds to invest, the fund operator can gain higher returns overall, which means each individual investor will see greater growth than they would as an individual investor.

Mutual funds are managed by investment professionals, and will invest the fund’s assets in numerous opportunities, from stocks to property and more. It essentially gives you the benefits of a diverse investment portfolio without the need to manage multiple investments yourself. Risks vary, depending on the specific fund, and most usually give a broad idea of potential returns before you invest, making them a great way to begin investing. However, because it is all managed by others and your only control is putting money in or taking it out, some investors who prefer a more hands-on approach don’t always enjoy the experience.

Property

While property values fluctuate up and down in the short and medium term, long term values tend to rise, so property is often seen as a good, solid investment. Returns may not be as high as some, but in general property is an asset you can buy and have confidence in. However, simply owning property is not the only way you can invest in this market.

Both commercial and residential property rental offers a long-term route to wealth growth. Here, rents cover the cost of the property and small levels of profit usually, but the key aspect of this is that over time you build a portfolio of properties that you own outright, and those assets deliver growth. This does require significant investment though, or significant debt in some circumstances.

There are other ways to benefit from property investing today, including development projects, where investors buy a share of the project at the design stage, and then receive their returns once the property has been built and sold. This is usually commercial developments such as malls or office space, but can be applied to residential or mixed developments too.

Cryptocurrency

Cryptocurrencies are digital assets that you can buy and sell at exchanges like most currencies, except there are no physical funds. Bitcoin is by far the most famous of these, and was also the first developed. While they are called currencies, because it is relatively long-winded to spend them, and in general you need to convert your digital money into local currency to use it, the better analogy is something like Gold.

Rarity gives gold value, and cryptocurrencies are similarly rare, there can only ever be 21 million bitcoin for instance. Also like gold, cryptocurrencies are traded on markets and rise and fall in value, but what does that all mean for investments?

Cryptocurrencies have the potential for incredible growth for investments. Since launching in 2009, Bitcoin has grown 93% per year on average, which would seem to make it an easy choice for anyone looking to grow wealth. However, that doesn’t tell the whole story, cryptocurrencies are incredibly volatile, and in 2022 Bitcoin lost over 80% of its value.

There is potential for profits here, but of all the assets we are looking at, cryptocurrencies are the highest risk. With care and the right timing, it is possible to see fantastic gains from cryptocurrencies, but in general if you see opportunities in this field that appear too good to be true, they probably are. As a largely unregulated market, cryptocurrency scams are rife, and if you do want to take advantage of these assets, seeking professional guidance is highly recommended.

All of these investment vehicles have potential to grow your wealth. Which is right for you, depends on what you want to achieve and the level of risk you are comfortable with. For reliable long-term growth, a diverse portfolio of investments that include many of these options is the best approach.

If you are looking to begin investing in these or any other asset classes, call our team today and we can help you find the right investment solutions to meet your needs.