A prevalent method to gain income passively is investing money. Investing, defined by Warren Buffer, is 'the process of laying out money now in the expectation of receiving more money in the future.' There are many investment options people can choose from, and all of them have their pros and cons. Gold, stocks, mutual funds, insurance plans, real estate (land), commodities, derivatives, etc., the list goes on.
There are also multiple investors, brokers, venture capitalists, bankers, angel investors, etc. All of these are widely used options. But, while investing money anywhere, it is crucial to understand that you could lose money. And because of this, it is critical to research and look at your options, implications, how much risk you're willing to take, and how they align with your goals. With such a broad scope of investing, there are bound to be under-researched investors who don't know what they're doing. Or who've done surface-level research, which doesn't help much? This article will elaborate on stocks, mutual funds, and gold. And allow you to make better decisions regarding these investment options.
Gold
Gold, especially in India, is a staple investment option. A lot of Indian families associate Gold with generational wealth. Thus, holding gold while buying more as its value increases. Gold is also an investment cushion. It is perhaps the only element that retains its value and doesn't fall to the effects of inflation. It has historically maintained its value. Which also makes it an attractive investment option. It is also an extremely liquid asset; one has to go to their nearest Jeweller and sell it. This is also because it is high in demand.
An essential factor is that gold is a natural resource making it limited. Which means its value is going to be consistent. Gold is also not hard to invest in because multiple mediums can be invested in E-Gold, gold savings accounts, gold funds, etc. Gold also doesn't require any middlemen, no charges, and documentation. And in the long run, its value always goes up.
Mutual Funds
Mutual Funds, on the other hand, are much more complex. It involves investing in bonds, stocks, and short-term debt. The combined investments are usually known as a portfolio. Compared to gold investing, mutual funds involve professional management by industry experts.
"Don't put all your eggs in one basket."
Mutual funds attest to this saying. It involves investing in multiple companies and industries and reduces the risk of investing. They are also affordable and allow liquidating your assets at any time. There are also various mutual funds, making it easy to invest in options. Mutual funds are also less risky and can be bought and sold online. However, it involves intermediaries; exit and entry charges apply and require documentation.
There are substantial returns by investing in mutual funds. Investing in mutual funds is also very flexible, with investment options as low as 1000 rupees. This is much more flexible than gold, which requires a large amount of capital early game itself. It is, however, not very stable since they are susceptible to the highs and lows of the market. Investors can also save money through tax saver funds.
Stocks
A share or a stock is a slice of ownership of a financial entity, company, etc. It entitles you to a part of the company and sometimes several dividends. Companies are divided into hundreds, thousands, and millions of stocks depending on their size and IPO. Stocks are one of the most widely sought-after ways to generate income. There is enormous scope for making money. However, this scope also means there is a large area for loss. There are also multiple types you can invest in individual stocks, Robo-advisors, index funds, etc.
The company you can invest in varies greatly. The specific stock you invest in also depends on your willingness to invest and how much risk you are ready to take. It is also essential to diversify your portfolio if a particular company faces a bad period. Stocks also appreciate value considerably over more extended periods as it all depends on the company's growth.
As you can see, gold, stocks, and mutual funds have comparable features. Although looking at it from a broader view, they aren't very similar. Your financial goals, the amount you're willing to invest, and the risk you're ready to take. For example, you could be investing a lot of money and want to lower the risk; for that reason, gold would be a comparatively better option than stocks. But if you're going to make money faster, investing in stocks is better because it has more potential to make you rich quickly.
Since the goals of every person are subjective, it is essential to do your research well. The internet has no shortage of information, especially with investing diversification. So always do your research, so don't go into the market under-researched.
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