If you reckon, we have understood that long-term investing is better than saving in earlier times. However, if you realize that you might prefer low-risk-products to compromise on your risk tolerance accordingly, stocks might not be a considerable option for you. Hence in these two weeks, we are going to explore two low-risk-products, namely gold and fixed deposits.
While there are numerous ways to invest in gold, we could only gain earnings through obtaining the spread by buying and selling it, thus we are unable to earn interest. Besides, due to the nature of being a low-risk-product, investing in gold only guarantees stable yet minimal returns. Nonetheless, the benefits might include a gradual appreciation in the long run, and it can also hedge against inflation. Investors are able to buy and sell anytime, which is comparatively more convenient. The few drawbacks of those is that, there is no way that we could earn interest, and it would be a must to wait patiently for it to grow. Fees and charges might vary a lot amongst different institutions as well.
As the name implies, fixed deposits indicate placing your money in the bank for a fixed period of time, and getting back your capital and interests when the tenure expires. Make sure you think twice before you select the bank as the rates differ. Just like gold, fixed deposits ensure a certain level of returns, which make it a good option for earning passive income. The main drawbacks are, this could be the lowest-return-earning-method for investors. If you would like to collect your capital before the end of tenure, all the interests would go to waste. There might also be cases where you would have to pour in more capital, if you are going to earn more interest.
In order to further compare and analyse, we can also check their returns out. In a shorter term, gold prices are more prone to volatilations, but appreciating gradually in the long run. Referring to the chart below, the prices went up and down every year, but overall the aggregate price has been increasing throughout the years.
On the other hand, the 6-month interest rates for fixed deposits range from 0.25% to 3.5% – the longer the time being, the higher the interest rates. To encapsulate, gold is a relatively more long-term-focus investment product, while the time frame for fixed deposits is approximately between 1 month and 5 years.
Now that we have analyzed the investing methods as well as the pros and cons of gold and fixed deposits, we will be getting to know their respective potential risks next time.