Safe Investment in 2022

Effects of FED Policy on Financial Markets:

What are the safe investments these days, when inflation is at 40 years record high? Financial markets are plunging all over the world. The federal reserve bank has already raised policy rates 3 times in 2022 and is expected to continue its path to contain inflation until CPI gets to ~2%. Consumer price index data for July is at 8.5%.

When the FED (federal reserve bank) decides to tighten credit in response to counter inflation, it goes for policy rate hikes, and as a result, the overall economy shrinks. Financial markets are the ones that are directly affected by policy rates. Stocks and crypto markets being the most volatile get badly hit. Considering the global supply and demand crises and resulting inflation, Fed will likely continue rate hikes for a year at least.

Sustainable Investment:

In this atmosphere doing an investment is not an easy decision. There needs a lot of cost-benefit analysis and risk management. Decisions one will make in the next 2 years will be responsible for his next 20 years' financial sustainability. Stocks are a bit riskier and technical as well, then what are the available options? …Cash? No, not at all, $10 in your bank account at the moment will always be worth less than $10 tomorrow, the value of money is depreciating with every passing day, thanks to the printer at FED, this is how inflation works. So, in this environment, sustainable investment is one with minimum risks backed by a strong asset and reasonable returns to survive through time.

Bonds and Fixed Deposits:

Fixed deposits in saving accounts and bonds are relatively safer than any investment in these circumstances, both yield fixed annual return on the investment. Countering the shocks of inflation and generating a sustainable return on your investment with nearly zero risk of losses on the investment. However, bonds usually pay more returns than fixed deposits. So, having bonds as a part of your portfolio is a good investment decision.

Suitable Bonds:

Which bonds are safer, pay good returns, and are easily accessible? Mortgage-backed bonds are safer than securities or mutual funds-backed bonds. Corporate bonds usually yield bit higher returns but are riskier. There is an inherent risk of loss if the bond issuer makes regular losses. On the other hand, solid assets-based bonds are less risky, as there is an asset backing that bond which works as collateral and can be sold in case of any mishap. Though the type of that asset matters. Historically, real estate has remained a valuable asset for centuries. So, real estate-backed bonds are much safer than any other type of bond. As the property backing the specific bond is yielding a continuous rental income. Moreover, the value of the property also increases with time, real estate can be categorized as the safest investment.

Real Estate Backed Bonds:

Real estate could be a good investment in this uncertain environment, but the problem here is property rates are already skyrocketing and a normal job person could not arrange this much amount at once. Here come the real estate-backed bond issuers, there are a number of credible bond issuers where you can start with even $100. They are paying annual yields of around 5%. Compound Banc is one of the real estate-backed bond issuing financial firms which is paying very competitive annual yields of 7%. Moreover, one can start with as little as $10, 7% APY, and monthly compounding makes Compound Banc the best and safest choice for a student, job person, and big investors. That is what I found interesting about it, however, you do your own research before investing.

Conclusion:

There are many options for investment; ranging from Cryptocurrencies, Stock markets, Commodities, Real estate, Saving accounts, and Fixed deposits, to bonds, etc. while investing the most important thing is risk management and the returns you are expecting on your investment after a certain period of time. Your expectations should be reasonable and logical. Many people end up losing their life savings in high-risk/reward investments in quick-rich schemes. Although a major portion of a rational person’s investment portfolio should be allocated to the products that offer reasonable returns with a low probability of losses, instead of huge profits with a high probability of losing all at once.

Do your own research before investing with any bank or entity. This is not financial advice.