We discussed about why do we need to achieve financial freedom in the previous article. This week, let’s discuss some of the ways to achieve financial freedom.
The only way to achieve financial freedom easier and faster is through investing. Read more about why investing is important here. There are various ways to invest. The following shows type of investments available in the market:-
- Stock investment: This is an equity investment. When buying a stock of a corporation, it means you are owning part of the corporation and this entitles you to part of the corporation’s earnings and assets. This is easier way of running a business yourself and you are leveraging on other’s people expertise in running the business and you get some profits out of it when the corporation is doing well.
- Bond paper: this is a debt security in which the debtor (bond issuer) issues a paper to the borrower (bond holder) in exchange for a fixed return (coupon). There is normally a maturity of the debt when the debtor agrees to pay back the borrowed money (principal) to the borrower.
- Peer to Peer Lending: This is a borrowing to others within an agreed period in return for fixed return. This is quite similar to bond but it is less complicated as it does not need complex bond issuing process and requiring capital a lot lesser than bond. Investors get access to peer to peer lending through various approved platforms like Fundaztic and Funding Society.
- Private equity: Private equity typically refers to investment funds, generally organized as limited partnerships, that buy and restructure companies that are not publicly traded. The different between private equity and stock is that private equity are not publicly traded.
- Real estate: real estate investment consists of buying and selling / renting the properties or land. The profits are gained through capital appreciation of the assets or incomes generated by renting out the assets.
- Unit trust investment: unit trust funds are generally favored by retail investors. It generally divided into 2 broad categories, i.e. equity funds and fixed income funds. Equity funds are managed funds to help retail investors to invest into a basket of stocks, hence requiring lesser capital compared to direct stock investment. Fixed income funds are bond funds and money market funds. Bond funds are managed funds to invest in a basket of bonds and money market funds are managed funds to invest in a basket of fixed deposit certificates.
- Real estate investment trust (REIT): Through REIT, a company will own, operate / finances income-producing real estate. Mostly, the real estates are commercial properties, industrial properties which given stable rental revenue. Through investing in REIT, one get the chance to own valuable real estate with opportunities to get dividend-based income and capital gain.
As you can see above, there are many types of investment vehicles available to choose for achieving your financial freedom. To be able to select the appropriate vehicle, you need to:
- Understand yourself – what is your risk tolerance, how much return you need to achieve financial freedom, how long do you have?
- Understand each type of the vehicles – understand the risk and reward ratio of the vehicles
- Selecting the portfolio – it is recommended to select a portfolio / mixture of these vehicles. Never put your money in the same basket, diversify! Select a basket of investment vehicles that suits your risk profile and return requirement.
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