Two Solid Investment Instruments for Higher Returns

In this write-up I will share brief overview of investing in ADRs. In the later half I will help you determine whether you should invest in annuities? I will also cover the risks and rewards of investing in these two investment options.

American Depository Receipt (ADR)

Introduced in the early 1920 in the financial markets, an ADR is a stock designed to trade in the USA though originally having shares in foreign companies and corporations. They are operated like normal stocks, issued and brokered through a bank/brokerage. They were created especially to target the difficulty of acquiring shares from countries with different currency values and trading at varied prices. This was designed to package them in groups and issue them via the NYSE,AMEX or Nasdaq.

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Free Stock Trading from Zecco

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It basically involves US banks and investment institutions buying an amount of stock of a foreign company or institution and then reissuing them and allowing people to buy shares whose prices were converted in to US dollars. It helps avoid administrative costs and duties on each transaction.

The ADRs are preferred by foreign companies as it gets them a chance to be a part of the equity rich US market; however the foreign company has to part with all financial information to the bank issuing their ADRs. ADRs are an easy way to acquire shares in foreign corporations and to gain profit off the growth of these companies in growing markets abroad.

Risk of investing in ADRs

There are certain risks due to the nature of investments, like whether the foreign country is politically stable or not, or is its home currency healthy or headed for a crash, risk of inflation to the currency etc. All these risks reflect upon your shares and can cause a financial loss to you. ADRs are a reflection of that countries economy and its health.

 

Buying and Selling ADRs

They are bought and traded in the same way as normal stocks. Normal rules of your brokerage apply to them as well.

 

Strengths

Their biggest strength is that they allow you to gain profit through the economic potential of foreign companies and emerging economies. They provide you with a variety of shares in your portfolio.

Weakness

The risk involved in trading with ADRs is their biggest weakness. Their dependence on a foreign company and in turn a foreign economy over which US would have little or no control for profitable returns is one of the biggest weak points. Plus adding to cultural and linguistic differences complete financial details can’t be attained of that company.

 

 

How Investing in Annuities can work for your Portfolio?

They are considered to be retirement income plans which are just one side of them. An annuity is actually an investment you make via a lump sum amount or through periodic installments for which you earn a fixed return every year for life or for the fixed no of years according to the plan. They do not provide any insurance cover but a secured income for life or the regulated period. They are mostly bought to establish a source of income when one retires hence the misnomer ‘retirement income plan’. They are also used by people looking for a low risk investment plan with an appreciable capital profit. Deferred annuities even give you the added benefit of avoiding taxation when investing.

 

Types of Annuities

Fixed: The holder gets fixed payments till the period of contract. The holder is guaranteed earnings on the amount invested and the principal added, which amounts to a sound investment option.

 

Variable: According to this plan at the remittance phase of the contract you are guaranteed a minimum return over a period of time plus the income generated depending on the performance of your portfolio. The user is allowed to invest in avaried combination of stocks, bonds etc. The actual performance of your portfolio determines your add on income.

 

What is the Risk of investing in Annuities?

 

Annuities have a very low risk profile. Your investments are carefully monitored and regulated by the government. However purchasing annuities from an insured company is another safety apparatus that you can look for. You are allowed to withdraw you principle amount however penalties may be levied.

 

 

Buying or Selling Annuities

These are on offer through various insurance companies, banks and brokers. Their is an minimum investment amount of $1000 plus purchasing fee which varies and can at max be 1.5% of your investment.

 

Strengths

Deferred annuities let your gains and interests to prosper without any taxation until you start receiving returns via payment. These are low risk investment options as your capital is considered safe.

 

Weaknesses

Fixed annuities can be affected by inflation whereas variable annuities invested in stocks and bonds are somewhat safe from inflation. If you are on a life time payment plan and you die before you get back all your money then you stand to lose.  These companies are then basically betting on you dying early so that they can recover profit from you.