The number and variety of investment products that are available today is astounding and to the average investor, trying to understand which one is right for you can be a tough task. Each type comes with various risks and with these risks comes differing rewards. One can feel that in order to comprehend each type requires an advanced degree, but you can improve your odds of success by doing your research.
We have all heard about the importance of keeping a diversified portfolio. Having various kinds of investments rather than just one type helps to protect your money by diluting the risk. You can think of it as being a multi-legged strategy to investing. One leg or type of investment could be composed of stocks, bonds, and savings.
Commodities comprise the next type of investment product. Some examples of these are items like gold, silver and oil. They can bring in substantial profits but at the price of very high risk. Usually commodities are left to the experienced investors who know how to evaluate the market.
Historically real estate has been a solid investment however due to its cost it is not available to everyone in traditional ways. For example Toronto residential real estate has an average price of well over $300,000 and commercial real estate may be even more. This is where Real Estate Investment Certificates, otherwise known as REITs come into the picture.
These are companies that go out and buy property or interests in hotels, office buildings, shopping malls and even mortgages. REITs themselves come in various forms to suit your needs. Equity REITs are investments in real estate. The rents that are charged generate income. To use Toronto as an example again you might have shopping centers with a Wal-mart, Home Depot, Payless shoes etc. which are all leasing buildings from the property owners. All together these Toronto properties are all generating income from rents for the REIT and its investors. The next type of REIT involves the lending of mortgage funds usually to developers or property owners. Can’t decide which one is right for you? In that case a Hybrid REIT that combines the two may be your best option.
Options are a kind of real estate investment that is often risky. Simply put a purchaser is making what’s called an “option for consideration”. An offer is made on a property based on the fact that certain conditions will be fulfilled. During this period the property is taken off of the market in return for a small amount of money as a deposit. There is a risk that if the conditions cannot be fulfilled the potential purchaser may loose their deposit. On the upside the purchaser could make a quick and tidy profit if they can quickly sell their option to a third party. To do this right a buyer must research the market thoroughly.
It can be confusing at times but the more you learn the better off you will be. As real estate has shown us in the past long term investing is the key and when put up against other types of investment products, real estate carries the least amount of risk. And as such it is vital to incorporate it in your investment portfolio.
