Contents of this article
As explained in our earlier articles on building a retirement plan, investing plays a vital role in building your personal financial foundation:
- Beating inflation: rising prices caused by inflation steadily erode the value of the money in your hands. If inflation is 5%, earning at least 5% a year is a must just to protect the value of your assets, before you even think about growing them.
- Building savings: besides a retirement fund, you also need to invest to save for buying a home, starting a family, paying your children’s school fees and other life needs.
- Financial freedom: freeing yourself from money worries so you can pursue higher goals in life such as family, your passions and your health…
Building a personal investment portfolio
This article introduces the most popular investment channels and their average returns, as a guide to building your personal investment portfolio.
The 4 Most Popular Investment Channels Today
Why should you invest in stocks?
There are many types of assets across different investment channels, and each has its own level of return and risk. Depending on your preferences, you can choose the channel that suits you best or combine several. Some popular investment channels include:
Fixed Income
In theory, this is the lowest-risk investment channel, with returns paid at a fixed rate on predetermined dates (the rate of return is also called the interest rate). At the end of the term, your capital is returned to you, in addition to the fixed interest paid each period (yearly or monthly).
Fixed-income investments available to investors in Vietnam:
- Bank savings deposits
- Government bonds
- Corporate bonds
- Bond funds
Stocks
Investing in stocks means buying shares in a company. Unlike fixed income, returns (dividends) are paid at no fixed rate and on no predetermined schedule; the company may even pay no dividend and reinvest the money in the business instead. So stocks are riskier than bonds or bank deposits, but their returns are higher.
Ways investors in Vietnam can invest in stocks:
- Investing in IPO shares and private equity.
- Investing in listed stocks on the stock exchanges.
- Investing in equity funds.
- Investing in ETFs.
Real Estate
Real estate investing covers buying and selling land plots, apartments and houses, or renting them out. It requires large capital and more legal paperwork than stocks and bonds. The real estate market is also less liquid than those two markets, so it suits only investors with large amounts of idle capital who can hold for a long time.
Commodities
Investing in the basic commodity market is another long-standing favorite. These are assets with real value in production and business, or that store value well. There are 4 main groups of basic commodities that investors favor and that are highly standardized:
- Agriculture: key crops and grains such as corn, soybeans, rice, wheat…
- Industrial raw materials: such as rubber, coffee, sugar, cotton, cocoa, palm oil…
- Metals: precious metals such as gold, silver and platinum, and base metals widely used in industry such as iron ore, copper, lead and tin…
- Energy: crude oil, natural gas and refined products such as gasoline…
Ways investors in Vietnam can invest in commodities:
- Investing in physical commodities, such as buying and storing gold or silver.
- Trading commodity derivatives through the Mercantile Exchange of Vietnam (MXV)
What Returns Have These Channels Actually Delivered?
Comparing returns across investment channels in Vietnam (source: Dragon Capital)
Let’s look at the returns of each investment channel, using a Dragon Capital study of asset class performance in Vietnam over the past 21 years.
Stocks clearly stand out, with an average return of almost 16% a year over the 21 years since Vietnam’s stock market was founded. The gap is even wider over the most recent 5 years, when stocks returned 19.2%, more than 7 points higher than the second-best channel, real estate, and far ahead of savings deposits.
Happy Trading !
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