Investing is one of the most reliable ways to build wealth. When people invest in various industries and diverse economic sectors, they can reap the benefits of an expanding economy and put their money to work. The benefits of investment are centered on the power of compounding and the tradeoff between risks and returns.

Nitin Bhatnagar, Dubai financial expert and the co-founder of Ellington Group, shares the top four investment types that should be considered when planning a profitable portfolio: cash, property, fixed investments, and shares.

1. Cash

While cash is somewhat losing its importance in everyday life thanks to platforms like PayPal and Square, cash remains one of the top types of investment because it is so versatile.

No matter how many investments you carry, it is a good idea to have significant cash reserves in case of a rainy day. Cash is a safe investment, even though it may lose its value at times due to inflation. It is crucial to have cash in your back pocket, creating liquidity in case of an economic downturn.

While cash has the lowest returns of all four main types of investment presented by Nitin Bhatnagar Dubai, it retains its position as one of the most important areas where you can put your assets.

2. Property

Property is a growth investment that poses many risks for the unwary. The housing market, in particular, is prone to bubbles and downturns. The circumstances surrounding the economic crash of 2008 should be taken into consideration as a cautionary tale.

Though the risks should not be overlooked, property investments can help create wealth, even for small investors. If assets are well-chosen, investors receive a predictable cash flow from rents and leases. They can take advantage of a favorable tax environment. They can also be reassured that their portfolio is sufficiently diverse.

Overall, real estate tends to appreciate in the long term, barring economic disasters. If investors are in it for the long haul, they will usually find that they make money. Speculators are more likely to lose money on their investments.

Paying down a mortgage allows the investor to build equity. This means that the investor has greater net worth and can use their leverage to buy extra properties, increasing their wealth and cash flow.

Real estate investments provide an important hedge against inflation. Real estate retains its buying power through moderating inflation’s effects on the investor. In addition, inflation can lead to capital appreciation.

If investors do not want to buy and manage a property themselves, they can invest in a Real Estate Investment Trust or REIT. This instrument allows investors to buy fractional parts of buildings or consolidate their holdings.

3. Fixed Investments

Fixed interest instruments, including bonds, represent loans taken out by the government. The investor receives a repayment with a low but fixed interest rate. Bond investments are defensive because they carry low levels of risk. They are more profitable than cash investments and often benefit from being guaranteed by the government issuing the bond.

Fixed income investments carry many significant benefits. They are a steady source of income. They are also tax-exempt in some municipalities. They preserve the investor’s capital steadily and reliably. They are a good choice for investors who are closer to retirement age.

While fixed-income investments can be beneficial for residents of Dubai, UAE, they also carry risks. Rising interest rates can cause the prices of bonds to fall and lose value. Inflation can be another significant risk, causing the investor to lose purchasing power.

Corporate bonds carry credit risks. This could mean that the company defaults on its debt, and the bond's full value is lost to the investor.

Managing these risks requires diversification in a fixed-income portfolio. A qualified financial advisor can help you plan your investments.

4. Shares

Shares are the best-known form of investment today. They are a growth investment, possibly leading to great returns. However, they are subject to the movements of the stock market and the economy in general. Over time, the general upward trend in share prices means that buying stocks is still a good investment. Shares can also pay dividends, which results when companies share their profits with their investors.

The stock market tends to average about 10 percent growth annually. If investors can withstand the economic and emotional pressure to sell stocks immediately when their price dips and stay steady with their investments, they can plan on reaping these benefits.

Planning a Solid Portfolio

Both growth investments and defensive investments are crucial to building a sturdy portfolio that will make money despite economic swings. Combining all of these in a single portfolio can be the best way to go when it comes to structuring investments.

Nitin Bhatnagar Dubai believes investors should consider working with financial advisors and wealth managers to construct a profitable portfolio. Diversification should be kept in mind, as well as taking acceptable risks.

This article does not necessarily reflect the opinions of the editors or the management of EconoTimes