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Where to invest in 2021: optimal investment

Wednesday, September 22, 2021

We will tell you about investments and where to invest in 2021.

Startup Jedi

We talk to startups and investors, you get the value.

Everyone’s talking about investment on Facebook and Telegram, which is not an accident. Investing is both important and handy. So without further ado we’re going to tell you where to invest in 2021. We’ll also address the topic of investment in general for those who are just getting started in it.. So ready, steady, go!

Why to invest?

You probably already know this, but just in case here are 3 reasons why spare money is worth investing.

Inflation. Saving money under the pillow is not the most promising option for an airbag, because it cannot hide from inflation there. In Russia, for example, inflation was 6% in 2021, which means that the amount that you keep a card or somewhere in a secluded place has lost 6% this year. Investments allow you to make profits at or above the inflation rate, meaning your money does not depreciate.

Passive income. By investing, you receive passive income. Of course, it will not work the way it does in investors’ Instagram accounts where they buy expensive cars, can afford anything and travel the seas. But it will all come gradually. At first you will receive small amounts, then, as your skills and level of investment increase, you will be able to make significant profits. And yes, Instagram lies.

Financial literacy. Investing is not a game of roulette, but a whole science. You need to understand how the market works, see which of the well-known investors and funds invest where, and monitor the situation in the world with business and politics. Starting to engage in investments, you will pump your own financial literacy, learn to control income and expenses, and also become a better educated person!

Types of investment: briefly

There are several main types of investment: deposits, bonds, stocks, real estate, as well as less common and, as a rule, more risky ways of investing (cryptocurrency, venture capital fund, investments in companies at the IPO stage, etc.) The main criteria by which they differ is reliability, liquidity, profitability, entry threshold and ease of investment. Where you should invest depends on the goals, capabilities and personality type of the investor. Let's briefly describe each method.

Deposits

One of the simplest methods is a bank deposit. You invest money in a bank for a long time, the bank uses your funds in its operations, you get interest, and at the end of the term you take your deposit + interest. Simple, reliable, profitable. But in fact, there are several nuances here:

Type of deposit. Can it be that you need some of the money before the agreement with the bank expires? If not, then a regular term deposit will suit you, but if you decide to withdraw the money early, you will lose part of the profit on interest. You can choose a demand deposit - in this case, you can withdraw part of the money or the entire amount at any time. But the highest interest rates are for long-term term deposits.

The chance to add funds. You need to figure out in advance whether you will be able to replenish the deposit during the validity period. The bank where you deposited money may have a limit on replenishment or withdrawal.

Capitalization. An additional option for some deposits where interest is accrued over a certain period, for example, a month - thus, the next interest is accrued on a new, higher amount. On small deposits up to a million rubles, the difference may be insignificant, but for those who invest large sums for a long time, a capitalized deposit is much more profitable.

Currency. Keeping a deposit in foreign currency is beneficial because it can be subject to less inflation (for example, the dollar is more stable than the ruble). Many banks have multi-currency deposits in which you can quickly convert money from one currency to another.

Deposit tax. It is important to know the legislation in this regard in your country. Thus, in Russia an income tax of 13% was introduced in 2021, which is paid on the interest on the deposit. For large deposits, the loss turns out to be quite impressive.

In general, deposits are one of the most reliable, but also the least profitable types of investments. The profit from the deposit will be enough to repay inflation: on average, rates on bank deposits range from 5% to 7%. But no one guarantees that there will be a spike in inflation. Another risk is bank bankruptcy.

Bonds

You lend money to a company or an entire state for development and it pays you interest. Bonds are securities that confirm the promissory notes of a company or government. The percentage is higher here: on average, bond rates are up to 10%. This type of investment is also reliable, especially in the case of government bonds - it is difficult to imagine that the state will go bankrupt (although it is possible). Company bonds are more susceptible to default risk, so it is best when you invest in multiple bonds to diversify the risks.

Stock

A share is a security that confirms your ownership of a part of the company. By investing in shares, you become its minority shareholder. There are two ways to make a profit from shares: the first is through the payment of dividends. The company distributes profits to all of its shareholders once a year (or more often). It is important to choose a company with a history that has been paying dividends for a long time, and is in a stable sector (banks, retail, oil and gas, pharmaceuticals). The second way is to buy and resell shares at a better price. This method requires experience and time: you need to understand the economy's direction, which stocks are worth buying, read about promising companies, regularly monitor stock quotes and the situation on the markets.

Now the third, most difficult (but also the most profitable) way of making a profit from shares is becoming more widespread is buying shares at the IPO stage. When a company prepares to go public, its value is estimated approximately - as a rule, the value of shares is understated. During this period, through special brokers, you can buy the company's shares at a lower price, and then, after entering the auction, the shares will grow. Usually venture funds and banking structures are engaged in this, but the purchase of shares during an IPO is also available for private investors. Some companies' shares can be sold several months after the IPO with a 200% or 300% profit.

In general, stocks are a very profitable, but also a risky type of investment. Anything can affect exchange rate fluctuations starting from a change in management in the company, new laws in the country, politics, to even tweets (if you bought Tesla shares). To balance the risks, it is worth acquiring a portfolio of stocks of several companies in different industries, as well as selecting stable companies with a good reputation, business model and strong management. Investment consultants can help you select stocks. In recent years, banks have been actively introducing roboadvisors. These are online assistants that will help you build a portfolio based on your preferences.

Real estate

Investing in real estate is a difficult and risky option with a high entry threshold, which can bring really high returns. You can invest in both residential and commercial real estate. The most popular ways to invest in residential real estate are buying it for the purpose of resale at a higher price and buying it for renting. The last method is the most advantageous: if the situation is favorable, the market value of your apartment grows, and you also receive a regular income from tenants. But here another serious risk called "human factor" comes into play. Unscrupulous tenants, fire, conflicts with neighbors, repairs and changing furniture. As a result, these costs may exceed all rental income. Therefore, the experience and wisdom of the investor are important here. You need to choose an apartment in the right place and organize the rental process. Another big risk is a drop in the cost of housing due to external factors, which also happens. For example, an expressway has been built next to the house where you bought an apartment, meaning cars are buzzing around the clock. This means the price of an apartment in such a house will fall, and you will not be able to influence it in any way.

Commercial real estate is an even more profitable investment option than residential real estate. The cost of rent is higher here, and the demand for it is constantly growing. Almost all risks are associated with tenants. If you are dealing with large stores, you will most likely encounter no problems. Yet, if your tenants are small individual entrepreneurs, be ready that in the worst case you will have to get the money they owe you with a lawyer.

Other types of investments

These include crowdinvesting (the joint purchase of shares in a company by several shareholders or the issuance of a loan to the company), cryptocurrency, investment in startups or a venture fund. All these types of investments are much less common (either appeared recently, as a cryptocurrency, or have a high entry threshold), and the opportunity to get high profits is combined with high risks.

It’s up to every investor where to invest. To do this, you need to decide on the following individual factors:

  • the amount you are willing to invest;
  • investment goals (overcoming inflation, making a profit, creating passive income);
  • the period for which you invest;
  • willingness to take risks - your experience and the amount of time available are important here. 

For example, if your goal is saving an airbag that will not be eaten away by inflation, the option of a demand deposit or a portfolio of bonds of several companies might work. If you want to get passive income and you have a large amount to invest, consider real estate. The "measure seven times, cut once" principle is a great tool for dealing with risks. The company that you intend to invest in and the property should be carefully checked. Make sure to obtain information from all possible sources and seek the advice of experienced investors.

Where to invest in 2021: an overview of the best investment options

Stock

Company stocks have been a profitable and proven direction for many years. At the same time, according to economic experts, in 2021 the economic situation in the world will change rapidly as the pandemic is still ongoing. Shares can "jump" in price in both directions. Economists advise building a combined portfolio of stocks and bonds to diversify risks. It is important to choose a direction that is on the rise in 2021: online retail, EdTech, the Internet of Things - in short, everything related to the "transfer" of the world online is now the most profitable option.

Venture funds

The startup ecosystem continues to evolve, so the number and capital of venture capital funds are growing year by year. Profit when investing in a venture fund starts at 7%, and can be very significant. With a successful investment in a startup, a venture fund can earn several thousand percent at the exit. No other type of investment offers such opportunities. Let’s say having invested $ 250,000 in the Oculus Rift VR headset at the entrance, the investors received $ 2 billion at the exit. One example of this is Twitter with $ 15 billion from the invested $ 5 million. But the risk here is also high. The word venture itself actually means "risk". There are dozens of unsuccessful investments for a super-successful one. The investor is only required to choose a venture fund and deposit funds, while the rest of the work is done by the fund's employees. They select projects, analyze risks, and distribute investments. At the exit, the investor makes a profit minus the percentage of the venture fund. There is a high entry threshold here - the bottom figure in venture investments averages $ 500,000. Those who are closely familiar with startups invest in venture funds and, in addition to profits, want to get satisfaction from contributing to technological development.

Real estate

Investing in real estate is an everlasting trend. In 2021, a particularly promising option is investments in commercial real estate. Due to the pandemic and the ensuing economic crisis, a lot of objects appeared in the CIS countries, which, being liquid, are sold for little money. It is important to track and find such objects, which is something to be done by an experienced investor or consultant.

ETF

Investing in an index fund is a great way to get high returns and reduce risks. For a small amount, you can buy shares of several companies, including stable corporations. The most important point is choosing the right fund.

Bonds

The stability of bonds is significantly higher than that of stocks. And the level of profit is on average 5-7%, which is not a lot, but it covers inflation. You can sell bonds and make a profit at any time. A promising option, according to experts, is investing in bonds of developing countries.

Precious Metals

Despite the fact that gold and silver sometimes slightly drop in price, in the long term, the value of precious metals always increases. They are ideal for a reliable and profitable investment for several years.

Mutual investment funds

Unit investment funds are another promising area in 2021. Profit when investing in mutual funds is 5-6% per year (which fully covers inflation), while this is one of the most reliable types of investments.

Franchise business

Can a business be passive income? No, if you start your own business. Yes, if you buy a ready-made business that has already shown its profitability, with a solid business model, clear logistics and a sales chain. The trend direction of 2021 is the acquisition of a franchise business. There is a guarantee of profitability and streamlined processes. Experts agree that online retail remains one of the most promising industries in 2021. Therefore, the delivery point of a profitable and large franchise is a great investment in 2021.

High risk investment

IPO

To buy shares of companies before entering an IPO, you need to have solid capitalю When working with American brokers directly, the threshold starts from several tens of thousands of dollars, investing through Russian intermediaries will cost from two thousand dollars. In addition, high risk comes with high returns. To choose a suitable company for investment, you need to have remarkable knowledge in business, be able to evaluate not only the advertising presentation of the company, but its business model and prospects for several years.

Startups

The startup industry continues to evolve. There are more venture capital funds, the number of unicorns is growing every year, and more and more companies are going public. Investing in startups can turn into enormous profits if the startup takes off, but, according to statistics, this happens in 1 in 100. This investment option is suitable for a real specialist: a venture investor or a startup with successful experience, who, among other things, have a certain "intuition" for promising startups.

Cryptocurrency 

Nobody knows how Bitcoin (and even more so, other cryptocurrencies) will behave in 2021. In the long term, this may be one of the most profitable investments, because the future belongs to cryptocurrency. But nobody knows what it’s going to be like short-term. Some economists speculate that Bitcoin may rise during the fall amid a trade war between the United States and China. In any case, it is important to adhere to a reasonable rule: do not invest all your money in cryptocurrency. And in no case invest borrowed funds.

There are many promising areas for investment in 2021. Analyze your capabilities, choose the right one and invest. And, of course, remember: "measure seven times - cut once." This is a principle that won’t let you down even in the unstable 2021.
 

22 Sep 2021

 

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