Regularly putting aside a portion of your income in a savings fund is the cornerstone of financial responsibility; providing security when times are hard, building a better future for ourselves and our loved ones when times are good, and ultimately, leaving a foundation that those we leave behind can build upon as they begin their own lives.
Unfortunately, many of us leave our savings in bank accounts, as a lump sum of the currency issued by our respective governments. There are a number of disadvantages to this, perhaps the foremost of which being inflation, the process by which the ‘real-terms’ value of a currency decreases over time; Putting aside a quarter of your yearly income in a savings account during your working life is admirable, though can be rendered ineffectual if average yearly incomes double (or more.) over the course of your lifetime.
While often framed as “putting your money to work”, investment can also be seen as a means of protecting the value of your savings against the ravages of inflation. There are many and varied forms of investment, and the range of options to do so can be intimidating to the first-time investor, even moreso in recent times, as technology democratises access to markets and tools previously only available to a select few. Here we will consider Real Estate and Foreign Exchange (Forex), these two differ strongly in a number of dimensions and offer instructive contrast on the range and types of investments available.
Real estate is perhaps the most common form of investment. Homeowners may not imagine themselves as investors, but their houses can be thought of as inflation-proofed savings accounts which they make payments into every month through their mortgage payments. Real estate is generally considered a ‘safe’ investment, which can be reliably expected to increase in value over time, in addition to protection from the inflation that the equivalent currency amount would experience. Whilst pullbacks in house prices do occur, and are sometimes dramatic, as seen in 2008, these can be expected to return to previous trends within a timescale which is short when compared with the lifetime of the investment. The other obvious benefit of real estate investment is that it has a use, whilst it accrues value it also provides you a place to live.
Real estate can also be made to generate a passive income by buying to let, whereby a property is purchased for the purpose of letting it out to tenants, so long as the rent charged is higher than the mortgage repayments and running costs combined, a reliable and regular income can be generated.
However, as a large, and typically long term investment, real estate has a high barrier to entry, mortgage providers require a large lump-sum up front. Economic events over the course of the investment may cause the mortgage payment to rise, the costs of maintaining the building must also be accounted for. Real estate is not a quick and easy way to generate a profit, a deep understanding of property valuation, maintenance and the market are all crucial, and even then, returns will only be seen on the timescale of decades.
In simple terms, Forex utilizes the ever-changing respective values of one currency to another to generate profit. For example, a person could buy a foreign currency with their home country’s currency. if, while they are holding the foreign currency, the value of their home currency decreases against the currency which they have bought, they may then exchange it back to their home currency for a profit. And they will be readily able to do so because Forex is an investment with extremely high liquidity; buyers and sellers are almost always available. This is in stark contrast to real estate where sales and purchases may take months of negotiation and involve several intermediary services. Forex markets are open around the clock and are comparatively volatile, presenting more opportunity for dramatic profits, but also equally dramatic losses; and even moreso in recent years with the growing popularity of crypto-currencies.And forex cent account is the thing that beginner can understand easy
Many brokers for the retail investment market offer forex trading with leverage, allowing investors to enter the forex with extremely small amounts, significantly lowering the barrier to entry. However, trading with leverage is exceptionally risky and it is important for prospective investors to fully understand it and the terms under which their broker is offering it as it may well result in catastrophic losses.