Having effective investment strategies on your roster can be a great way to ensure that you have a steady stream of liquidity as well as savings to address your short-term and long-term goals. With that in mind, every investor should consider all the options available before deciding on an investment instrument so that they can make the best of their funds and maximize them over time.
It is important to consider that even the most underrated investment vehicle could sometimes be crucial in addressing your goals effectively. Here are five underrated investment options that every investor should consider while building their portfolio:
Most people do not consider cryptocurrency as a great investment either because it is too complicated for them to understand, or because they are not able to figure out how to go about it. But with its accessibility and no minimum investment amount, cryptocurrency is a great investment option to consider in the current times. In fact, it is one of the most valuable digital assets that you can invest in today. While it is regulated by some governments around the world, it follows a decentralized mechanism that makes it possible for teams to create codes for issuance and control of the cryptocurrency.
When we say cryptocurrency, the first thing that comes to mind is Bitcoin, and rightly so, because Bitcoin is the pioneer of digital currencies. Since then, many new forms of cryptocurrencies have emerged in the market including Ethereum, Ripple, and Cardano. If you are thinking of investing in it, one thing you should remember is that Bitcoin and such cryptocurrencies have volatile values, and their price depends on an array of factors as opposed to a centralized rate set by the government. Consequently, you could make major gains or major losses by investing in them.
2. P2P lending
Another highly unconventional investment option that has been popular only recently is Peer-to-Peer lending, also known as P2P lending. How is this an investment you may ask? P2P loans are processed through websites that moderate the transaction, however, these are not regulated by any banks or financial institutions.
One of the primary pros of P2P lending is the low risks associated with these loans and the higher interest rates associated with them. The process starts with the lender finding the right fit with a borrower and investing funds. The borrower will then get monthly returns based on the rate of interest decided at the start of the transaction.
Since P2P loans are not regulated by banks or any other financial institution, the rate of interest on P2P lending is usually pretty high. This is one of the primary reasons why P2P loans are such a lucrative investment option for young investors. Though underrated, P2P loans provide a great opportunity for young investors to invest in new business opportunities and can be a great avenue for generating passive income.
3. Closed-ended Funds
Closed-ended funds are yet another investment option that remains underrated because people do not understand it fully. Closed-ended funds are basically a type of IPO, wherein the company aims to raise a fixed amount of capital through a portfolio of fixed assets. A great thing about closed-ended funds is that they offer a higher rate of returns as compared to their open-ended counterparts. The biggest risk associated with closed-ended funds is that the value of shares changes based on the supply and demand associated with them.
Closed-ended funds follow a collective investment model, and do not allow the investors to buy additional shares after the NFO period is over. Moreover, it also does not allow buyback offers, which means you can buy or sell it only on the secondary market by investors just like individual stock shares. One of the most positive characteristics of Closed-ended funds is that due to limited trading of the assets, they perform better during economic downturns, ensuring higher security than open-ended funds.
4. High Cash Value Insurance
Insurance policies for most people are a way to ensure that their loved ones are taken care of in the event of a sudden tragedy. While this is a great reason to buy an insurance policy, investing in a high cash value insurance policy can offer you multiple benefits. With such insurance policies, the cash value is high, and the death benefit is low since the focus here is on cash accumulation. One of the significant benefits of investing in a cash value-based insurance policy is that it grows over time, granting you investment gains and more importantly, this is tax-deferred.
This cash value can be treated as an investment-based savings account from which policyholders can draw money whenever needed. As a result of high cash value insurance, one can get cash benefit in addition to insurance value as well as processing fees and charges for the policy. Due to the nature of the investment, insurance policies that offer high cash value make a great retirement income-creating asset. Some insurance providers also let you take out loans against your policy,
5. Tax-Deferring Retirement Funds
Retirement funds are beneficial in the long term and can help you build quite a financial corpus for your retirement. One of the biggest immediate advantages that one can get through these retirement funds is the tax deferral in the current year. They say that tax planning and retirement planning should go hand in hand so that you can enjoy a comfortable life post-retirement. Not only that, but people are also likely to generate lower taxable income and find themselves in a lower tax bracket thus reducing your tax burden after retirement.
It is important to not confuse tax deferring retirement accounts with tax-exempt retirement accounts. The cash accumulation that comes with such retirement plans wherein the employer and the employee contribute to the latter’s retirement fund can facilitate the purchase of real estate or a major asset which can be useful in generating income as well.
The investments of an individual are generally tied in with all kinds of goals that they have set for their present and their future. Most investors try to maintain a balance between short and long-term investments, as well as ones that may be risky and less risky.
However, selecting the right investment can be crucial in determining whether it can be beneficial in achieving your goals. Some of the investment options above can help in making your portfolio stronger, even though they are considered uncommon and underrated.