Securities, deposits, or real estate? Pros and cons of the main investor tools

For those who want to take the first steps in investment, there are a number of opportunities available today. You don't need to have a lot of money and play the long game. We will tell you about the most popular tools that are available to a broad audience of interested people, and consider their pros and cons:

1. Bank Deposit/Account. A bank deposit account is one of the most reliable types of investment available to all adult citizens. The depositor transfers the accumulated amount of savings to the bank, the bank puts it on a deposit account and every month accrues the interest to the owner of the funds that can be withdrawn or kept on the account. This way of making a profit is absolutely passive and does not require any actions from the investor.
Pros: easy to open; you can deposit any amount; funds on the deposit account are insured by the state; the deposit brings a predictable stable income; the credit rating of the deposit owner improves.
Cons: low profitability; often - no opportunity to immediately withdraw money from the account.

2. Bonds are debt securities that are due within the defined timeframe. When selling a bond to someone, a company that issued it "borrows" money from the depositor for a certain period and undertakes to return it at the end of the defined period by paying the owner of the bond the so-called "coupon payment" (interest for using the funds).
Pros: interest is higher than for deposit accounts; guaranteed return on investment and additional accruals if the company is reliable; the ability to sell bonds at any time without any loss of income.
Cons: the probability of losing all funds if the issuing company goes bankrupt; the resulting profit is taxable.

3. Stocks are securities that confirm the ownership of a share in the authorized capital of the issuing company and give the right to get part of its profit. All joint-stock companies shape their capital by issuing shares.
Shares are divided into common and preferred ones. The difference between them is as follows:
- common shares give the owner a voting right in the management of a company at the rate of 1 share = 1 vote as well as the right to get dividends in the distribution of the company's profit. The amount of dividends is not guaranteed and depends on the financial result of a company, as well as on the decision the board of directors takes on distributing the profit.
- preferred shares give the owner priority rights to receive dividends the amount of which is clearly defined: for example, 10 kopeks per share or 0, 001 % of net profit per 1 share. This type of shares is secured by the right of priority settlement when a company is liquidated. Dividends on preferred shares can be paid not only from profit, but also from other sources. In fact, the investor does not even have to wait for the organization to start making profit.
Pros: investing in shares can provide high returns; you can invest any amount, even a small one; shares of major corporations listed on the stock exchange are highly liquid, they can be turned into money at any time; a wide range of investors can invest in shares through brokers; two ways to generate income: dividends and speculation; suitable for both active and passive investors.
Cons: a risky capital investment tool with the possibility to lose 100 % of investment in case a company goes bankrupt; in a time of crisis, most shares depreciate and their liquidity decreases, i.e. the ability to quickly sell them decreases, so this tool is not suitable for short-term investments; the need to diversify risks by investing in shares of different companies; changes in the share price are difficult to predict; if a company makes no profit, investors may not receive dividends.

4. Real estate. This type of investing involves financial investments in construction or ready-made projects to generate profit. There are two strategies for earning money on real estate: passive income from renting out or speculative income from resale. There are also investments in residential and commercial real estate, in real estate units abroad and in unfinished construction projects.
Pros: high investment reliability; the value of real estate will never fall to zero, as, for example, the value of shares; real estate can be used for personal needs of the owner; two types of income: renting out and resale; renting out generates a passive lifetime income; low risk of capital loss.
Cons: sizeable start-up capital; low passive income from renting out, sometimes even less than return on bank deposits; low liquidity; requires additional expenses: payment of realtor, notary and state fees; significant expenses incurring from real estate maintenance and major repairs; high risks of fraud require knowledge of legal framework, the return on investment depends on legislation changes and can vary greatly.
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