An investor is his tools. Every investment instrument requires careful study before you start using it.
This article explains the least risky ways to invest in 2023.
Only reliable methods that we will explain in simple terms.
Not all investment instruments can bring 300% profit but at least the ones mentioned in the article will not burn through all the depositor's funds because someone made a tweet or some asset went out of fashion.
Note: The article is not an investment or financial recommendation and is for informational and educational purposes only.
Content:
- The safest types of investments in 2023
- Expert advice: where to invest money in 2023
- Real estate investments in Thailand
The safest types of investments in 2023
For the global market, the years 2020-21 turned out to be extremely turbulent. The reasons for this are known. Since the COVID-19 pandemic and its subsequent crisis have not disappeared.
Many classic assets in an investor's portfolio are either toxic or extremely risky today.
Which assets will bear the least risks in 2023? We have chosen 3 options that are the most trustworthy.
Mutual Fund
A mutual fund is a passive type of income. The investor carries out the main work during the stage of searching and choosing a suitable fund where he plans to invest his money.
A mutual fund (open-end fund, open fund) is a commercial organization that accumulates funds from several investors and then invests them in a certain financial asset.
The resulting profit is later distributed among investors in proportion to the share of their contribution to the total capital of the fund.
In addition to open-end funds, mutual funds offer a closed-end fund option. To understand the difference, it is necessary to explain what an «equity unit» is.
The fund cannot simply take money from investors. commitment to them through an obligation to repay the funds received from the investor with interest.
In order to keep records of these obligations, investors are offered to give the fund money in exchange for certain securities called equity units.
An equity unit is a nominal paper with a specific denomination. It allows you to keep a record of how much money was taken and from whom. The difference between an open and a closed fund is seen in the shares.
An open-end fund can:
- Freely issue new securities as company capital grows;
- Enable new investors to purchase securities directly from the fund;
- Allow investors to repay the shares at any time at the specified nominal value; the fund can sell new securities at any time.
A closed-end fund is the opposite of an open-end fund:
- The number of securities of this fund is limited to the number that was issued when the fund was created;
- The investor cannot repay the equity unit; it can only be sold to other investors at market value. To repay the share means to sell the equity unit back to the investment fund at the current market value;
- Thus, new investors can purchase securities of a closed-end fund only from other owners of these securities.
Mutual funds are organizations with a staff of specialists engaged in investment management. Their responsibilities include market analysis, choosing the direction of an investment, making a profit and distributing it among investors.
Examples of open-end funds are hedge funds, venture funds, private equity funds, etc. In particular, a hedge fund is an open mutual fund for «qualified investors». It is possible to repay shares only once a month or less often.
For unqualified investors, there are other types of mutual funds such as Interval Funds (UIT) and REIT (Real Estate Investment Fund). Each investor should choose a suitable mutual fund, taking into account his own experience in investing and the desired result.
Deposits
Many people think of deposit accounts when referring to deposits. Indeed, bank deposit accounts are relatively safe. However, the interest on them is so low that the investor will not receive any tangible benefit either in the short or medium term.
Hence, this section suggests paying attention to term deposits and debt security/bonds.
A term deposit is the placement of money in a bank account with a specific expiration maturity date. On the one hand, the bank is obliged to return the money with interest on time. On the other hand, the depositor can withdraw funds from the account before this period only with a fine (most often with the loss of accumulated interest).
Specific deadlines are beneficial to the bank in its financial planning. In view of this, term deposits are valued by the bank above the usual deposit. The interest on such deposits is higher. A fixed-term deposit is certified by issuing a certificate of deposit.
The longer the term of the deposit, the stronger the difference between the term interest and regular deposits is felt.
A term deposit is a good balance between riskiness and profitability.
The interest on it is higher than in ordinary deposits although the total income is lower than in many other instruments. The security of this investment is as high as the security of ordinary bank deposits.
Term deposit can be attributed to a subspecies of debt security. The latter is a broader concept that includes:
- Government loan bonds;
- Corporate bonds;
- Preferred shares;
- Secured debt obligations, etc. can be attributed to the same family of instruments.
Like term deposits, loan bonds are fixed-yield instruments. This distinguishes it from equity instruments, the profitability of which depends on market indicators.
Despite their similarity, term deposits and bonds should be distinguished.
A bond is a debt obligation in the form of a bond specifically issued for a security loan for a certain amount of funds of the lender (investor).
Bonds can be traded on the market and their market price may differ from the nominal one. Thus, it can be used not only for obtaining a fixed income but also for market speculation.
Real estate investments
Real estate is a whole world in itself. We will describe its investment instruments hereunder.
Among the passive types of earnings, we have already mentioned REIT investment funds, the essence of which is to collect investors' money and transfer it to a staff of managers to invest in order to subsequently distribute the profits between depositors.
There are other passive income instruments such as REIP.
You can easily understand what RIP is if you have heard about platforms that raise funds for projects. The most famous of these platforms are Kickstarter, IndieGoGo, GoFundMe, Sponsor or Boomstarter. The main difference with REIP is that this organization raises money for real estate investments.
For example, REIP specialists can raise funds for the purchase of apartments that should bring high rental income. The income is proportionally distributed among «backers», i.e. investors.
Some organizations provide «semi-passive» methods of earning, for example, REIG. This is a kind of «association of investors by interests». A group of investors decides to organize themselves by summing up the available funds, knowledge, skills and connections in order to jointly invest in certain real estate projects.
A distinctive feature of REIG is that the group does not involve third-party specialists for investment management. Each member of the association holds his position and, to the best of his ability, provides his services and expertise to other members.
Profits, risks and liabilities are equally divided among all participants of the enterprise.
Active ways of earning can include earning on rent, «buy-and-hold» strategies, and flipping.
The last two respectively relate to strategies:
- «Buy for a long period and keep it until the market value increases».
- «Buy, carry out minimal work like cosmetic repairs, and sell as quickly as possible with a sharp price increase».
There are also more sophisticated ways to earn money in real estate, for example, flipping contracts when the exclusivity of a booked low price for an object becomes a commodity.
This exclusive reservation is resold to the final buyer at a premium for the uniqueness and cheapness of the offer.
The main feature of the real estate market for investors
The real estate market of any country is too large a sector of its economy to be considered in isolation from other industries.
The real state of affairs in the market is always determined by the state of the local economy.
It is not enough to only know the indicators of current demand, a specific developer, a property and the area, and where it is located in order to make a qualified investment decision. This is the path to failure.
In the reality of the real estate market, even the size and cost of the consumer basket in the country can play an important role.
It is important to avoid the illusion that the real estate market is determined by large investors with multimillion-dollar deals. Such deals get into the news but the real market is created by millions of people. This includes those with the smallest incomes and without a noticeable connection with what is happening.
Real estate cannot be perceived simply as a market asset. First of all, it is a socially significant consumer product:
- Real estate;
- Retail space;
- Production spaces;
- Server areas for Internet service providers;
The cost of a socially significant product, like everything else, depends on the «emotional state» of the population.
If the majority of the population is not confident in economic stability, or if millions of young people do not even have the means to rent a cheap apartment, then what kind of healthy real estate market can we talk about?
At best, it will be a market of semi-stable financial and mortgage bubbles.
We say this in order to point out the importance of comprehensive general economic analytics for all investors who want to earn seriously on real estate in their country or abroad.
Such an analysis is difficult for an individual investor to conduct independently. Therefore, it is extremely important to have contact with qualified specialists like lawyers, analysts, and managers.
If a REIT doesn't suit you, it could be a real estate agency. If an agency is not suitable, then it may be a consulting firm. In any case, a detailed market analysis is the most important aspect of investing in real estate.
Expert advice: where to invest money in 2023
Noteworthy information is shared by CNBC whose work is related to the coverage of American business and the international financial market.
According to the company's experts, it will be possible to characterize 2023 according to two trends:
- High volatility of markets such as currencies.
- Continuation of high inflation.
Many HNW investors (individuals with high net worth) choose instruments whose advantage is a natural increase in capital value following inflation and a more or less predictable income for a long period.
Such tools include:
- Industrial and residential real estate.
- Shares of companies related to consumer goods, as well as streaming services and platform economy companies (like Amazon, Apple, or Airbnb).
In the real estate sector, REITs are at the forefront.
The Investopedia portal indicates an increase in the popularity of ETF securities in 2021 and the preservation of this popularity in 2023.
Such securities are directly linked to mutual funds. But, unlike conventional units, an ETF (an exchange-traded fund) combines the quality of both registered securities and classic exchange-traded shares with all the relevant features.
ETFs are directly related to a subspecies of mutual funds called Index Funds. These funds choose an investment strategy by following any of the market indices. For example, Vanguard 500 index fund follows, as you might guess from the name, the S&P 500 index.
According to NextAdvisor materials in collaboration with the Times, index funds are a good option for inexperienced investors.
The Independent writes that by sectors of the economy in 2023, it is worth paying attention to alternative energy and software.
Investment funds related to healthcare may also be a good solution.
The National points to a curious observation of the stock market. In the US, one of the world's two key economies, every major sector has grown significantly in 2021. For example technology, industry, energy, healthcare, finance, and real estate.
According to the publication, this situation indicates that the market is in a state between the middle and the end of the growth cycle (a «Bull market»).
This means that 2023 can be used as a platform for quick earnings on the growth of shares of the largest companies in these sectors. However, this requires special caution since it is difficult to predict when the current cycle may abruptly break and enter a «bear market» or a fall.
In other words, the situation is suitable for speculation and short-term acquisitions but it is worth refraining from investing in long-term growth.
Real estate investments in Thailand
The article could not exist without this section but we will focus on it briefly and on the facts.
Is it worth investing in real estate in Thailand in 2023?
Yes. But some nuances need to be taken into account.
In 2023, real estate in Thailand is a buyer's market. Sellers are advised to hold assets for the future. Prices are low and not attractive to sellers. Changes should not be expected in the near future.
At the same time, many experts believe that the recovery of the sector will begin within 2023.
All analysts agree that it will be difficult for buyers to find another similar period when a large number of high-quality real estate is so cheap due to the lack of a stable influx of buyers.
The litmus test for whether the market will enter growth will be when Chinese investors and ordinary buyers come to Thailand again en masse.
Chinese citizens have always been the largest consumer base for real estate in the country. Even in the worst moments of the pandemic, they have not lost their overwhelming majority demand in the real estate market.
Experts do not doubt that the massive return of Chinese property buyers to Thailand is a matter of time. As soon as the government of the Kingdom can convince Chinese investors to return to the Thai market again, we should expect a rapid increase in real estate prices.