Investment in gold best and safe way; good to buy stocks but it carries some risks.

Byline: Khalil Ahmed

Dealings in stock/shares, mutual funds, silver and REITs offer good return

Interview with Mr Nouman Zaheer - Director, Investment Multiline Securities (Private) Limited

PAGE: Where should people invest their money as a buffer?

Nouman Zaheer: Inflationary pressures are the more technical reason that force people to invest. Inflation is an economic concept that explains why the price of goods and services increases over time. In Pakistan, the government tries to control and manipulate inflation. In fact, they think some inflation (6-8%) is good for the economy. Many people would disagree, especially since many wages haven't kept up with inflation over last few years, but that's how it is.

As the government manipulates the money supply and interest rates to control the inflation rate, inflation will continue to occur, and prices will continue to rise. Similarly, dollars are worth less and prices keep going up. By refusing to invest in something that at least keeps pace with inflation, they are actually losing money. The purchasing power of their money is decreasing, as is their true wealth. Investing has historically provided a way to outpace inflation and grow wealth. Although inflation has averaged close 8% per year over the last 10 years, some investments have returned far more than that. In fact, the aggregate Pakistan Stock Exchange (KSE-100 Index) has returned close to 20% per year, on average, over the last two decades (Dec 1998 closing index was below 1000 current index in Dec 2018 hovering around 38000).

As stated above, stocks are a good investment and have historically provided high returns for investors. Stocks represent actual ownership of a publicly traded company, and the stock owner (investor) is entitled to a share of company profits. So by investing in stocks, you are providing the money necessary for companies grow, expand, and create profits to eventually give back to you. The stock market has risen roughly about 38 times since 1998 in Pakistan, which means there are far more profitable months than bad months.

However stocks are not without risk. The stock market has plummeted many times throughout history, and it will almost surely do it again. Protecting against unlucky market events is called "hedging" and is a common practice among investors. The most widespread way of hedging is using negatively correlated assets and options. For example, if a company's revenue and share price are strongly...