When planning to invest, the first thing that comes to mind is the stock market. However, the stock market can be very volatile. If you proceed without caution, you might end up losing your hard-earned money. If you are not ready for the stock market, here are some other ways to invest.
1) Small business
While the majority of the small businesses closed in just five years, there is still a strong case to starting your own business. It takes a great leap of faith, indeed, but the returns can be highly rewarding particularly when it comes to providing you with short-term cash flow which can cover the basic needs. In some cases, you only need between $100 to $1,000 to venture on your own business. More than the monetary investment, however, you also have to commit yourself to the business otherwise it will not flourish.
On the other hand, you may also invest in other people’s business. This works in two ways. First, you may purchase a partial business ownership to be entitled to the equitable amount of profit of that business. Second, you may lend your money to a business owner who are in urgent need of funds in exchange for a mutually-agreed interest.
2) Certificate of deposit (CD)
Also called time deposit in other parts of the world, a bank issues a CD to an individual who deposited his or her money for a specified period (i.e. 1, 3, 6, 12 months or more). There are two benefits of this type of investment. One, you will not lose the principal and two, your interest is guaranteed. The lowdown is that the interest rate is very low but is still a great investment if you want to stash and grow your money at the same time.
Some financial experts say that if you want to maximize your CDs, you have to build a CD ladder. For example, invest your $1,000 on a 12-month CD, another $1,000 on a 24-month CD, another $1,000 on a 36-month CD and so on. You may do this simultaneously. Alternatively, by the time, the first CD with a 12-month lock-in period hits its maturity date you may reinvest it in a CD with a 24-month lock-in period.
One of your choices in joining a lending club if you don’t want to do the collection on your own. The lending will be the one to collect and receive the repayments from whoever have borrowed the money that you invested in the organization. You can start with only $25. One advantage of this investment is diversification. For example, you’ve invested $1,000. The money will be divided and so only $100 of you money will go to a borrow, another $100 to another borrower, and so on. Through this, if one borrower defaults, you won’t lose your money entirely with the remaining still making you money through interest.
Alternatively, you can do peer-to-peer lending. From the name itself, you’d know what it is – lending money to a relative or friend in exchange of an interest. Generally, the interest rates are lower than what banks are offering. It would be better to document each transaction so you’d have proofs in case the borrower defaults. Be clear with collection dates as well.
Each investment involves a certain level of risk. The ideas noted above are no exemptions; they are also risky. You can always minimize the risk by learning what you are actually attempting to invest into before you sign any paper. Make sure you understand all the ins and outs of that particular investment. Warren Buffet is right when he says don’t invest on something that you don’t understand.