Many would say that the good return on investment is the return on your investment. This statement contains a lot of wisdom. It is when people take greater risks to earn better returns and end up losing most of their investments that they make the biggest mistakes in investing.
Investors must have a realistic view of what is a win in order to calculate a good return on their investment. Any con artist will convince you that their offer is extraordinary if you don’t have a realistic idea of what it is. Scammers are those who think that huge returns are possible.
What Is a Good Return on Investment: 6 Categories Of Invest
Here are six categories of investments that you can expect to earn high returns.
1. Speculative Investments
Let’s begin with rule number one The greater the potential return, the higher risk. Penny stocks are a great example.
Don’t let this fool you. Even legitimate companies that offer stock can be speculative. Based on an FDA ruling, small biotech companies that solely aim to find the next breakthrough treatment may see their stock price rise or fall by as much as 80% in one day. You might be on the right side, but it is possible to lose almost everything. This is true for stocks and new IPOs that are bought solely to be a target for a takeover.
Gold could also be considered speculative. You might make a fortune if you are able to catch gold before the crisis hits. You might think that gold is the best investment, but in reality, you were lucky and your speculative investments paid off.
Timing is everything. If it’s not right, your investment can suffer a slow and steady decline. This happened with gold between 1980 (when it was $615 per ounce) and 2001 (when it dropped to $271 per ounce). You should consider investing in gold as part of a diversified portfolio.
Also read: 6 Best Low-Risk Investments
2. Traditional Stocks and Stock Fonds
What about blue chip stocks and the entire stock market? To evaluate the returns of this type of investment, it is important to know the difference between investing in stocks and investing in an index fund.
The investment risk scale ranges from one to five. Five is considered high-risk and five is the lowest. A stock is a level five investment danger. You can lose your entire money by investing in it. A stock index fund is a level four investment risk. You can lose money, but it would almost impossible to lose all of your money. A risk level one is given to safe investments such as savings accounts.
3. Real Estate
You often hear that real estate can provide a good return on your investment. It does? It can if it’s done correctly. Many successful people made their fortune by investing in real property. You can also buy real estate Like any investment with high returns potential, it can also result in a loss.
There are many Realtors who will sell you real estate. However, real estate is best for experienced investors who have invested in these markets for years. Until you have a lot of experience, renting properties or flipping homes is not an easy way to make money.
4. Traditional Bonds and Bond Fonds
Traditional bonds are government and corporate bonds that have a rating higher than BBB (S&P/Fitch), Baa3, or Moore’s. These bonds are classified as level two or three on the investment risk scale.
When interest rates rise, bonds’ principal value decreases. This affects long-term bonds more than short-term ones. These price fluctuations won’t affect you if you have an individual bond that you plan to hold until maturity.
Also read: Top 10 Investment Apps
What is the latest speculative trend? Bitcoin and another cryptocurrency. Whether or not cryptocurrency represents the future of financial transactions is a topic of much debate, but experienced investors know When something so rapidly rises like Bitcoin in 2017, the risks of losing big outweigh the potential rewards of scoring a big win.
Congratulations to those who invested in Bitcoin in years past when it was not widely known. However, getting in after the big move doesn’t make for good risk management.
6. Safe Investments
While safe investments can offer a return on investment, they are not likely to provide a high return. The historical returns of safe investments have been in the 3%-5% range, but they are currently lower (0.0%-1.0%) because they primarily depend upon interest rates. Safe investments will yield lower returns when interest rates are low. People may want to make higher returns by chasing riskier investments.
What about the stories of ‘great return’?
You hear stories about people who have made incredible returns from investing in the right stocks. This is called luck. We are happy to help those who win the lottery, but we do not invest all our money in lottery tickets.
It’s absurd to think that because one person has made a good return on their stock or real estate investments, it would be easy for others to do the same. It is as simple as winning the lottery. Don’t follow the fads.