Shares, commodities or bonds?
Shares, commodities, and bonds are popular investment vehicles used by many expats seeking to place their money somewhere where it will grow over time. So, what’s the difference between the three and which would be best for you?
Purchasing shares involves investing directly in a selection of companies. You can either do this yourself or use the services of a professional financial advisor who will place your money in a fund or investment trust.
Shares are generally considered suitable for medium to long-term investments as their performance can fluctuate over time. However, if you are prepared to keep them for long enough, the capital growth they will experience substantially outperforms cash investments. You will also enjoy a revenue stream through annual dividends.
However, shares can fall short of expectations and are notoriously unpredictable, making them unsuitable if you are looking to receive a predictable revenue stream from your investment.
The commodity market is divided into hard and soft commodities. Soft commodities include any agricultural products, for example coffee, sugar and soya beans. Hard commodities are mined, and include oil, gold, and gemstones.
A commodity futures contract is an agreement to sell or buy a set amount of a particular commodity at a predetermined date and price. This enables buyers to avoid the risk of price fluctuations of a raw material or product, while sellers attempt to lock-in a price for their products before the prices move too much. However, the commodities market can be just as unpredictable as shares, leading to high losses or gains in futures.
Precious metals make a good back-up plan for your investment portfolio. The value of precious metals, such as gold tends to remain steady or increase over the longer term and doesn’t suffer the fluctuations of other commodities that are weather or environmentally dependent, so it can therefore be used as a hedging tool.
Bonds issued by governments are also referred to as ‘gilts’, while those issued by large companies are called corporate bonds. Bonds are effectively IOUs, making you a creditor of the party who issued the bond.
Bonds provide security for your investment, unless the company you’ve invested in goes bankrupt. Bonds also offer a high predictability factor, especially those that offer a fixed annual return. However, a fixed income and lower level of risk usually means a lower return on your investment than shares.
When it comes to making the best investment decision for your money, it pays to consult an expert financial advisor.
Shares, Commodities, Bonds – where to get more help
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