Where To Invest When Stock Market Is Over-Priced?

Ganesh Adhikari

The stock market is always volatile as the market rises and falls continuously. There is always a tussle between the bull and the bear phase in the capital market. This fact leads to the risk of losing money as well as the opportunity to gain profits.

It’s hard to believe many times the portfolios filled with stocks that were once winners but are now disasters. As it happens, a company was bought properly at RS. 400 and then it quickly ran up to Rs. 600. But the word was out that it would soon run to Rs. 1000, so why sell? When it dropped to Rs. 200, you discovered only too well why it should have been sold. The sell decision is crucial if you are going to win big in the market which is always changing its paths. Unfortunately, few market players ever master this important step.

When the market is considered over-priced, but every day it keeps rising higher. Every time you think it might fall, it rises even higher. Similarly, the vice-versa is true. Predicting the reversal of the market might not be easy. Since you do not want to lose the profits made in a rising market, the question arises, what are the other options to invest other than share market and beat the inflation at the same time?

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Investment Alternatives When The Stock Market Is Over-priced

1. Fixed deposits (FD)

Fixed deposits are one of the safest investments options with satisfying returns. The financial institutions (commercial banks, development banks, and microfinance) provide periodic interest payouts.

Microfinance companies may pay healthier interest rates than commercial banks. Some have interest rates above 12% with no risk. The money can be placed in fixed deposits for a minimum of three months.

2. Government Bonds

Government bonds are low-risk investments as the government backs them. A government bond is a debt issued by the government and sold to investors to support government spending. Periodic interest payments are provided by the government bonds. As the government’s bonds have risks equal to null, they pay low-interest rates. An individual can purchase these bonds in the form of stocks.

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3. Corporate Bonds

They are debt security similar to government bonds but issued by a firm. A company needs capital, so it issues corporate bonds by paying the investor a pre-established number of interest payments at either a fixed or variable interest rate. When the bond expires or reaches maturity, the payments cease and the original investment is returned. The ability of the company to repay the investors depends on its prospects for future growth. The Company’s physical assets may be used as collateral for issuing the bonds. Since they are riskier than government bonds, the interest rate is higher than paid by the government bonds. They are certainly less risky than stocks.

4. Debenture

A debenture is a bond or a type of debt instrument that is not backed by collateral. Debentures are issued only by creditworthy and reputed firms or governments. Both corporations and governments frequently issue debentures to raise capital or funds. The interest is usually higher than the corporate/government bonds. Debentures are listed in the capital market and can be traded when the market is open. The commercial and the development banks issue debentures now and then to raise the capital.

5. Gold

The precious metal can be a good investment for the long term. Although the piece of gold is volatile in the short term, it has always been on a rise in the long term beating inflation. Especially, in our society, gold has its role in weeding and other cultural activities. Thus, gold can prove to be a worthy investment. Gifting gold to your wife or other family members can be seen as a winner’s move. You can keep family members happy and invest at the same time. Silver can be a great investment option along with gold.

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6. Real Estate

Real estate is arguably the best long-term investment. Real estate is probably the safest investment option as it has a limited supply and the demand keeps on growing. Our parents and grandparents might tell, how cheap the land was then and have seen the exponential growth in their prices. It might be the same case for us talking the next generation kids. The prices aren’t going to fall and shall keep rising. A significant advantage of owning your own home or any other real estate is the regular rental income it can generate for you with almost 100% certainty.

7. Lending Money on Loan

Lending money on loans provides high returns. There might be a friend, a neighbor, or a relative who might need the loan for different purposes. Lending them money by keeping the collateral can be a very safe option for investing. Lending money on a loan can provide interest easily above 10% if not more.

8. Life Insurance

Investment in life insurance policies can give two-way advantages. You get high returns after the policy is matured and you are financially prepared if anything worst happens. Thus, investment in insurance policies is highly recommended. The importance of investing in life insurance cannot be stressed enough. Life insurance offers financial safeguards against the death of the policyholder and insures the loved ones don’t suffer financially. Life insurance can be considered to provide emotional satisfaction.

9. Dividend-paying Stocks

Irrespective of the stock market fluctuations, the high dividend-paying stocks are always considered safe options for investment. The fundamentally sound and dividend-paying stocks carry low risk. Although their prices will fall and rise with the trend of the market, the loss can be caught up by the dividend paid.

Regular income from the stocks through dividend-paying stocks is very lucrative. Even if the prices fall, when the bull returns their prices will also eventually hike. The power of compounding certainly helps the cause.

10. Mutual Funds

As a beginner, one has to do a lot of work research, and analytical work to find good stocks, and the risks become multiplied in an over-priced market. An easy way to remain invested in the stock market without being worried about the rise and fall of the market is to invest in mutual funds. The highly educated and professionals of the stock market run the mutual funds. Finding a good mutual fund company and investing with a long-term goal in the mutual fund can be worth your money. The hard work of investing in the stocks and timing the market shall be done by the fund managers.

11. High-yield Saving Accounts

If you do not want to put your money in fixed deposits, finding the highest-yielding saving accounts can help. Microfinance and finances pay handsome interests in saving accounts only. You can withdraw your money any time and gain good returns for keeping them in your account.

12. Initial Public Offerings (IPO)

Although this comes to the capital market, investment in IPO’s is very safe. Most IPO’s are issued with a base price (usually Rs. 100 in Nepal) and there is very little chance to be at a loss. No matter how over-priced the stock market may seem one must subscribe IPOs’, given the company is fundamentally sound and has growth potential.

Related: Upcoming IPOs In Nepal

Conclusion

Investment is essential to make money work for us. It helps to grow our wealth and at the same time provides additional income. One thing is sure purchasing power of our money decreases day by day, investing should be the way of life to live in a financially stable future.

These safe options can help you keep up with the inflation and not lose your purchasing power over time. Aiming for higher returns might require high risks.

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