Where to invest your money in 2018: compared risks and profits

Have you ever thought about any ways to make extra cash at minimum risk and without a detailed market research? I’m sure, you have. Many people want to generate a passive income, but not everybody has enough time and courage to start earning more. I’ve made an extensive analysis of more than 20 different ways where to invest your money, assessing them, based on a number of factors:

  • the highest returns in the recent year

  • relatively low risk, corresponding to the profits amount

  • relatively simple documentation and so on

Having studied the advantages, disadvantages and the pitfalls, I’ve selected 4 best investing options, according to the good risk/reward ratio. These financial products can be afforded by any individual investor, irrespective of the initial capital. The best way to make extra cash is to follow the tips below.

1. Assessing the return on bank investments

Bank investments (deposit (saving) accounts, metals and so on) are a common way to invest money. The advantages of deposit accounts include the lowest risk level to earn money via investments. However, in the EU member countries banks start charging minimum, or even negative, interest rate. For example, the negative interest rates were introduced in Germany in 2018. The Swiss largest bank UBS also charges negative rate on the deposit accounts.

To analyze the performance of investment banking, I suggest the example of banking industry in Spain that has become one of the leaders in individual investing in 2018; and Spanish banks still retain positive interest rates on bank deposits. Average rates on the deposits for a term of 3 – 6 months are about 0.15%-1.0% per annum. As for the investment risks, in 2017, only a few banks faced serious difficulties; but, as the deposits are insured by the Deposits Guaranteeing Fund, it was not a problem for the deposit holders. The risk in investment banking is relatively minor. It takes an average up to 30 minutes to settle a contract with bank.

Drawbacks of bank deposit accounts:

  • Low return, not covering the inflation rate. For you to compare, the inflation rate in Spain was 1.11% in 2017, according to statbureau.org.

  • Money freeze on your bank account. Some banks don’t allow you to do premature withdrawal. Short terms deposits have a very low percentage rate;

  • Risk of bank failure. Although the deposit is insured, if a bank fails and turns bankrupt, a part of the deposit that exceeds 100,000 EUR won’t be covered.

  • Political risks. There is always the risk that bank investment’s returns could suffer from political changes or instability in a country, or your deposit account could be frozen for a long time. It was, for example, during the crisis in Catalonia.

Bank deposits suit mostly those, who are not aiming at generating a big income, but rather want to save their amount of money.

2. The Stock market and its prospects

Investing in stocks is buying securities in documentary or non-documentary form in the stock market through a broker for the purpose of reselling it. Investors can also make money on dividend payments.

A difficulty for an individual investor is entering a trade. The initial deposit can be of a few thousands of euros (it makes no sense to trade in the share market with a less deposit). In addition, a stock investor should be an expert in the industry-specific features and monitor the development of certain companies. Instead of stocks themselves, you can trade shares as CFDs (contracts for difference). Their advantage is that investors can also gain on the falling prices (short trades).

How to start investing in stocks:

  • Select a broker that provides trading equities in the stock market.

  • Assess the prospects of a certain company: learn its development strategy, analyze external factors, affecting its performance, study its financial reporting and equity multipliers and so on.

  • Diversify your risks, composing your investment portfolio of securities, issued by the companies in different industries.

The average yield on some equities can be up to 30% per annum and more. The stocks’ price quotes for Facebook in the chart below show how much you could gain on both the price increase and the two drops, if you entered a short trade.

3. Is real estate worth investing?

What is real estate investment? To invest in real estate means that you buy land, residential and non-residential premises on the primary and secondary markets to make profits from its resale if its price increases; or to let it and receive rent. For a fair analysis, I suggest looking at the real estate market in Spain.

According to a large real estate agency Tecnocasa, the real estate prices have been substantially down in the recent year. The prices in the secondary market dropped the most of all; therefore it’s one of the best moments for buying investment property. Average rent in Spain is about 400 – 2000 euros, depending on the living space, city, district, and the condition of the apartment. For example, an apartment that costs about 150,000-200,000 euros (70-80 sq.m) can be let for 400-800 euros per month. So, the average investment return is 20-30 years, or 3%-5% per annum. However, you may bet on an increase in real estate property prices; but it is hard to say, how much the price will increase, if it will at all.

Drawbacks of the idea to invest in real estate:

  • If you buy an investment property and become a landlord, it will take you a rather long time to recoup your costs.

  • Political risks. Real estate prices can significantly drop in case of political changes or instability.

  • The property can be physically destroyed.

  • The document execution is rather complex and expensive.

It makes some sense to invest in real estate if you prefer to diversify the risks and to make a long-term investment.

4. Social trading: gist, advantages, profits

Social trading is a way to make your money work for you. The automated copy trading platform enables an investor to skip taking trading decisions and to copy the orders of a successful trader to his/her account. As the trades in the financial markets are automatically copied to your account, you just need to select a trader form the broker’s clients and attach your account. The profit is not limited; but the more it is, the more risks are engaged in the trader’s strategy.

Advantages of social trade:

  • You don’t have to be an expert in the financial markets and trading strategies.

  • You can control the risks by yourself, manually

  • You make online investment instantly from any part of the world. You can stop copying at any time.

Another big advantage of copy trading systems is that anyone can become not only an investor but a manger as well. If you can make money on the financial instrument and are confident in yourself, you can attract other investors make extra cash receiving a commission fee.

As for drawbacks, online investment bears a relatively high risk. In addition to that financial markets, themselves, are not always predictable; there is also a risk, resulted from human factor (a trader’s error). So, I offer a few tips how to invest money in social trading:

  • Diversify your risks. Invest in a number of traders, trading different strategies.

  • Follow risk management. You can copy successful trades, only provided your deposit and leverage are more or less equal. The investor can also put the orders independently, according to the trader's system, change your trade volume or close the position earlier.

  • Study the trading history and statistics.

I hope you liked the review and will draw the right conclusions about your personal finances. Remember to share the article with other potential investors!


4 Best Investments in 2018

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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