Shares
Shares represent ownership in a publicly traded company. When you buy shares of stock, you become a shareholder, entitled to a portion of the company's profits, and voting rights at shareholder meetings.
- Pros: Potential for high returns, dividends, and ownership in successful companies. Relatively liquid, allowing for easy buying and selling.
- Cons: Subject to market volatility, individual stock selection requires research and
understanding of company fundamentals, buying and selling involves brokerage costs.
Bonds/ Fixed Interest Securities
Bonds are debt securities issued by countries, states or corporations to raise capital. When you buy a bond, you are essentially lending money to the issuer in exchange for regular interest payments (coupon) and the return of the principal amount at maturity.
- Pros: Provide stable income through regular interest payments, generally considered less volatile stocks, and can provide diversification due to its defensive asset allocation.
- Cons: Returns are generally lower compared to stocks, subject to interest rate risk, and inflation can erode purchasing power over time. Capital value can change with interest rates.
Real Estate
Real estate investments involve purchasing properties, such as residential homes, commercial buildings, or land, with the expectation of generating rental income or appreciation in property value over time. Real estate can be tangible, providing both utility and investment potential.
- Pros: Potential for rental income, appreciation in property value, and tax benefits such as depreciation deductions. Offers diversification from traditional financial assets.
- Cons: Requires significant upfront capital, taxes and ongoing maintenance costs. Market
liquidity is generally lower compared to stocks and bonds. Selling costs are more expensive than other investments.
Managed Funds
Managed funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. They are managed by professional fund managers who make investment decisions on behalf of the investors. Managed funds offer diversification and professional management for investors with varying risk tolerances.
- Pros: Diversification, professional management, and accessibility for investors with smaller capital. Provides exposure to a range of asset classes.
- Cons: Management fees can erode returns over time, some funds may underperform their benchmarks and if held on platform, there can be additional costs.
Exchange-Traded Funds (ETFs)
ETFs are investment funds that trade on stock exchanges, similar to individual stocks. They typically track an index, commodity, or basket of assets and offer investors exposure to various markets and sectors. ETFs combine the benefits of diversification, low costs, and intraday trading liquidity.
- Pros: Diversification, low expense ratios, and intraday trading liquidity. Offers exposure to niche sectors, thematics, active and passive and varied asset classes.
- Cons: Prices fluctuate throughout the trading day, exposing investors to market volatility. Some ETFs may track volatile sectors, increasing risk.
In summary, investing in various asset classes can help individuals build wealth and achieve their financial goals over time.
For those who have not yet started their investing journey, it can seem daunting with the industry jargon, technical charts and abundance of information readily available.
Here at Hunter FP, we help clients see past the noise and just start the journey. Get in touch with us to start your own journey.
"The secret of getting ahead is getting started." - Mark Twain