Saturday, January 22, 2011

Best Options for Investments in 2011

We work hard in order to live the lifestyle we want, and support the future we dream of. However, working hard for our money is not enough – you have to make sure your money keeps working hard for you long after it has been paid into your bank account. Your salary and earnings can’t get you to the future of your dreams on their own, you have to direct and guide your funds into investments which are right for your finances, your needs, your goals and the current economy.

Financial markets tend to run in cycles, something you will have noticed if you watch the movements of official interest rates. Therefore, it is important to know which investment option is at the top of its cycle in 2011, so you can make the most of your hard earned cash. In 2009, significant gains could be made on the stock market, and in 2010 the real estate market was paying big dividends for investors where residential real estate investors in particular could see returns of between 50-100%. At the same time, the stock market in 2010 was returning just 18% and gold returned around 30%.

Therefore, even though we have said goodbye to 2010, we are still in the 2010-11 financial year and investment decisions need to be made with both the not-long-past recession and the future opportunities in mind.

Investing in Gold in 2011

Gold is often used as a safe haven by investors when there is the risk of a recession, interest rates are fluctuating and to protect against inflation. Although gold has long been a popular investment option, the fluctuations in price cannot be ignored, for example gold hit a low of $100 in 1976 before rising to $850 in 1980. Although gold dropped again to $250 in 2001 it has been rising ever since and topped $1,400 in December of 2010.

However, the world economies are stabilising and the risk of recession is abating and so while gold is expected to stabilise in 2011 it is not an investment option which will show a lot of growth in the coming year. Therefore if you are already invested in gold or gold funds, you may want to consider cutting back your money there, and avoiding the investment if you’re new to the precious metal.

Currency and Forex Investment in 2011

The foreign exchange market is constantly on the move and the currency which is the best investment can change at a moment’s notice. Therefore, you should always be aware of what is happening in the currency market regardless of the turn of a calendar and if you were watching at the close of 2010, you will have noticed many currency pairs falling significantly in their averages. If these falls continue throughout 2011, there will be a comparatively small trading range for the day’s trades every day.

At the same time, you can make money on the forex market in 2011 by looking at longer term trades. Since the trading ranges are small in the current market, especially in the main pairs you should look at an everyday chart to spot the overall trend and look at a four hour chart so you can pick your entry and exit points. The main pairs on the currency market will always match technical analysis on long time frames and all you have to do is locate one or two high odds trading opportunities each week.

Since there has been such instability in many economies in recent years, the forex market has become a very popular investment option. If you’re only just starting out in currency investment, consider using a managed forex account to help you navigate the changing market as many countries continue their path to recovery.

Real Estate Investment in 2011

Investments which are ‘as safe as houses’ tend to be very popular, even as the world economies emerge from slumps and step back from the brink of recession in most areas. If the memories of falling stocks and lost investment interest are still fresh in your mind you may be looking to property investment in 2011. Many countries have experienced a property price boom in response to low interest rates and high demand from first time buyers and investors, thanks to generous government incentives to keep economies strong. As a result , investment in the Australian or Indian property markets for example would see you buying at the top end of the price cycle, but is good news if you have already secured your property.

However, in the US for example property prices are still relatively low as the economy struggles to recover fully, and there is little demand. While interest rates in the US remain low, it is still hard for many Americans to borrow due to other debts, a ruined credit rating or unemployment. Therefore, if you have the means and the opportunity to invest in property in 2011, you could snap up a bargain this year, which will inevitably appreciate in value over the long term.

Saving Your Money in 2011

You may think that squirreling your money away in a saving account will never go out of style but as the Global Financial Crisis taught us, even the biggest of banks can fail, and take our money with them. Therefore, you need to make sure you research and diversify your savings investments for 2011 to make sure you get the best returns, your savings can beat inflation, and that they’ll be there when you need them.

Four savings investments you should consider for 2011 include:

1. Certificate of Deposit.

A certificate of deposit offers some of the highest interest rates available because you are locking in your savings for between one month and five years. To make the most of interest rate movements in 2011, opt for both long and short CD accounts so you can take advantage of new higher rates as they change.

2. Online money market accounts.

When you use an entirely online account you can secure a high interest rate on your savings because of the lower administration costs from the banks. In some cases these interest rates can even rival Certificate of Deposit interest rates. With an online account you can also quickly and easily transfer funds in and out, but are not tempted to spend because the account is not linked to your ATM or EFTPOS card.

3. Instalment savings account.

If you need a bit of encouragement or motivation to grow your savings investments in 2011, consider an instalment savings account where you agree to make regular payments to the account for a certain period of time. There can be penalties for withdrawing money early as a further incentive to save but if you shop around for the best savings account offer you can earn high interest by playing by the rules.

4. TIPS mutual funds.

TIPS are bonds which are issued by the US treasury and pay a return based on the adjusted principal value of the bond. The value is adjusted twice a year with the rate of the consumer price index so your TIPS mutual funds can always keep up with inflation. Banks can sometimes be slow to raise the interest rates on their savings accounts because the Federal Reserve is determined to keep interest rates low. However, with an affordable TIPS mutual fund your savings are protected against rising inflation.

No matter what year it is, or what the market is doing, it always makes good investment sense to diversify your investments across a number of options. This not only allows you to take advantage of changes and movements in a variety of areas in the economy, but also protects you if 2011 doesn’t bring the prosperity expected for a particular investment medium.

Alban is a personal finance writer at Home Loan Finder, a home loan comparison website

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