Ideal Investment Mix for Layman Investors

In this post I will take you through three investment options that any layman investor can include in his portfolio. These are some of the most common investments that anyone can have in his portfolio. I will try to discuss key strengths and risks involved in these proven investment options.

Collectibles

Putting your money in collectibles is akin to investing in the acquisition of physical objects that have a potential to increase their value over a period of time. Then after a period of time you sell them to recover your invested amount and a profit. It is profitable and more interesting than acquiring electronic shares. The only advantage with collectibles is that their values are closely linked with inflation and hence their values generally increase with inflation. It could be a rare stamp, fine art, or any physical asset.

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They however take long to increase their value and there is always a shadow of doubt about their value in the future. Values and expected returns for collectibles depend heavily on supply and demand of that entity.

 

The time for their values to mature varies widely, for fads like sports cards and barbies the prices peak very quickly, whereas antiques cant take up to decades before they reach their peak.

 

Strengths

They offer a way to gain profit off inflation and provide security against it.

 

Weakness

Their selling prices can vary and may not be what you expect or wish for. It is very difficult for a buyer to actually determine its original value. They are long term investments however they cannot be counted on for retirement income.

 

Treasuries

These are widely known as “government securities”. They are issued by the government. Treasury securities are used to finance debts and are an instrument used by the United States Federal Government for this purpose. They are issued by the United States Department of the Treasury via the Bureau of the Public Debt. They are considered solid safe investments because they have backing of the government and are powered by its crediting and taxing power. One of their strong advantages is that theyr are exempted from any form of state and municipal taxes.

 

Treasuries include short-term Treasury bills (T-bills), medium-term Treasury notes and long-term Treasury bonds (T-bonds).

 

Treasury Bills – It is a form of U.S. government debt security which has a maturity of less than one year. They are distributed via a fair competitive bidding process at a discount and are not supposed pay a fixed interest rate.

 

Treasury Notes – They are a form of U.S. government debt security having a maturity period lying between 1 and 10 years. They however have a fixed interest rate.

 

Treasury Bonds – These are marketable and have a fixed rate of interest. Their maturity periods are more than 10 years. They are issued in minimum multiples of $1000.

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Risks Involved

They have low returns because of low rate of interest as they have low risk profiles. They are considered to be safe grounds for investors. Their prices rise when interest rates take a fall and vice versa. Hence the best time to buy treasuries is when the interest rates are high. The easiest way to trade in treasuries is via the U.S. Treasury’s “Treasury Direct” program which charges petty fees.

 

Real Estate & Property

 

Objective and strengths

 

It involves purchases of property and land, a house for e.g. as a lucrative investment option. However the possibilities and options are not limited to just homes and can be endless. Vacation homes, commercial properties, land (both developed and undeveloped), condominiums and many other possibilities lie in this field. Investments in real estate depend on the area, the policies of that land and other factors.

Time since construction and condition of the home, recent improvements and additions done, recent sale history in the neighborhood they all affect the value of the property.

Investing in real estate with great potential for appreciation can lead to considerable capital gains

 

Risks

 

It is hard to liquidate property on a short notice. Incurring taxes, maintenance issues and repair costs are part and parcel of the investment. However putting up the property for rent is a good option as it is a source of regular income.

 

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