6 ways to make capital gains
There are basically two types of investment income. Capital gains and investment income.
Investment income is the income you receive from an asset, examples of investment income are interest on savings, property rentals and stock dividends.
Capital gains are an increase in the value of an asset; An example of capital gains is an increase in the value of property, stocks and other assets.
Some investments provide capital gains but no income; examples of these are precious metals such as gold, bitcoin, antiques and other collectibles.
Here are the investments that provide capital gains:
The sharemarket
The share market offers excellent opportunities for capital gains. For most people, investing directly in the markets is not an option, as the transaction fees involved in buying and selling shares are not worth it, however, there are many managed funds that investors with limited resources can participate in. New Zealand is one. Investors can pour money into the markets with Sharesies and it is possible to invest in various funds or individual companies. Other similar platforms in New Zealand include Investnow, Kernelwealth and Hatch. These are not the only ones though.
Your retirement scheme invests in managed assets (Mutual) and is also a form of capital gain. Joining Kiwisaver in New Zealand is a no-brainer. Kiwisaver is New Zealand’s superannuation scheme.
Property
The property market has been a popular Captain Gains tool for many investors by using not only their own money, but other people’s money in the form of loans. The income is obtained from the income that pays the mortgage. All associated costs are the most popular form of capital gains and the easiest for a novice investor to dip their toe into the markets and learn as they go, because there are so many mutual funds available and the initial costs are minimal. Sharesies in New Zealand cost just $1 which allows you to invest in managed funds or individual companies. It’s a great way to make it tax-deductible. This type of investment can turn into cream, say, bad tenants. If you are willing to take the risk, this investment may be right for you.
Your home is a good source of capital gains if you plan to sell it someday.
Another way to get on the property ladder is to buy shares in property investment companies on the stock market. This can be done by investing in individual companies that invest in property or in managed funds.
Compound interest
You should be aware of compound interest; that is when you invest in fixed term accounts at x% interest. Instead of receiving your interest payments directly into your bank account, you let your principal add up and earn interest on your principal and previous interest payments. This is called compound interest.
The increase in your capital is called “Capital Gains”.
Interest rates are very low today (2020); in some cases, it is lower than the inflation rate, which makes this type of investment less attractive. It is therefore important to do your due diligence and not be lured by some financial company that offers higher interest rates than usual, as with higher interest rates comes greater risk. These financial companies that offer higher interest rates lend to higher risk borrowers.
I’m not saying you shouldn’t invest your money in these companies, but rather do your due diligence and at least diversify your portfolio instead of investing all of your life savings in one company.
Gold
This is pure speculation, but it can be a good hedge against falling markets. The only downside to gold is finding a place to store it. Another way to invest in gold is to buy gold stocks in the sharemarket. Another option is to buy gold coins from auction sites like eBay and Trademe. As with other investments, it pays to do your homework and read as much as you can about gold and other precious metals.
Crypto currency
Cryptocurrencies like Bitcoin and similar should be treated as speculative investments, so invest money in it if you can afford to lose it. What I am saying is use your discretionary income to buy cryptocurrency. This type of investment can be a rollercoaster ride, but a tip that can be useful is to not only buy all your cryptocurrencies in one transaction, but to do it weekly, fortnightly or monthly, so you have a chance. made a purchase when the currency is low. It’s called the average.
Collections/Antiques
Investing in collectibles can give you satisfaction and profit when you plan to sell. You really have to know your stuff when dealing with antiques. Always remember, something is only worth what others are willing to pay for it. If someone is willing to pay $1,000 for a painting at auction, that’s what it’s worth, but if another painting sells for $10 at auction, then it’s worth it. The value of something is only a matter of opinion.
Recently (2020), some of Banksy’s paintings sold for over $100,000 in New Zealand. The painting dealer paid a total of $500 in London, UK a few years back. It just goes to show how profitable one’s eye can be.
For smaller items like postage stamps, banknotes, beer labels and more, collectors can list duplicates on auction websites to help fund their hobby.