Investing can give the investor additional sources of income and gradually take you out of financial bondage. It does not also only help you grow your wealth but also help you meet your financial goals and maximize your purchasing power in the medium and long term. Investing may intimidate a lot of people as a result of the many options, and it can be difficult to figure out which investments are right for your portfolio.
This articles considers some ten of the most common types of investments, from stocks to crypto, and also gives you options to consider including each in your portfolio. Before you invest, consider consulting a financial advisor to guide you and help you figure out which investments can help you to meet your financial goals.
Before you continue, check out some investment ideas by William Armstrong in the video below.
1. Stocks.
Stocks which is also known as shares or equities, might be the most well-known and simple type of investment. When you buy stock, you are buying an ownership stake in a publicly-traded company. Many of the biggest companies across the globe including Apple, Facebook, Alibaba are publicly traded, meaning you can buy stock in them. When you buy a stock, you are hoping that the price will go up so you can then sell it for a profit. The risk, of course, is that the price of the stock could go down, in which case you can lose money.
2. Bonds.
When you buy a bond, you are essentially lending money to an entity usually a business or a government entity. Companies issue corporate bonds. The U.S. Treasury for example issues Treasury bonds, notes and bills, all of which are debt instruments that investors buy. While the money is being lent, the lender gets interest payments. After the bond matures implying that you have held it for the contractually determined amount of time you get your principal back. The rate of return for bonds is typically much lower than it is for stocks, but bonds also tend to be a lower risk. But this does not imply that that there are no risks involved. The company you buy a bond from could fold, or the government could default. Treasury bonds, notes and bills, however, are considered very safe investments.
3. Mutual Funds.
A mutual fund is an composition of many investors money that is invested broadly in a number of companies. Mutual funds can be actively managed or passively managed. An actively managed fund has a fund manager who picks securities in which to put investors money. In this case the fund managers often try to beat a designated market index by choosing investments that will outperform such an index. A passively managed fund, also known as an index fund, simply tracks a major stock market index. Mutual funds can invest in a broad array of securities: equities, bonds, commodities, currencies and derivatives. Mutual funds carry many of the same risks as stocks and bonds, depending on what they invested in. The risk is often lesser, though, because the investments are inherently diversified. One can buy them directly through the managing firm and discount brokerages as an individual or an entity provided you able to pay the minimum investment.
4. Exchange-Traded Funds.
Exchange-traded funds (ETFs) are just similar to mutual funds. But unlike mutual funds, which are purchased through a fund company, shares of ETFs are bought and sold on the stock markets. Their price fluctuates throughout the trading day, whereas mutual funds value is simply the net asset value of your investments, which is calculated at the end of each trading session.: Exchange Traded Funds are often recommended to new investors because they are more diversified than individual stocks. You can further minimize risk by choosing an ETF that tracks a broad index. And just like mutual funds, you can make money from an ETF by selling it as it gains value.
5. Certificates of Deposit (CDs)
A certificate of deposit (CD) is a very low-risk investment. You give a bank a certain amount of money for a predetermined amount of time. When that time period is over, you get your principal back, plus a predetermined amount of interest. The longer the loan period, the higher your interest rate. CDs are good long-term investments for saving money. There are no major risks because they are FDIC-insured up to $250,000, which would cover your money even if your bank were to collapse. That said, you have to make sure you wont need the money during the term of the CD, as there are major penalties for early withdrawals.
6. Retirement Plans.
There are a number of retirement plans. Workplace retirement plans, sponsored by your employer and individual retirement plans. Retirement plans are actually not a separate category of investment but a vehicle to buy stocks, bonds, and funds in two tax-advantaged ways. The first, lets you invest pretax money. Then the second allows you to withdraw money without paying taxes on that money. The risks for the investments are the same as if you were buying the investments outside of a retirement plan.
7. Options
An option is a somewhat more complex way to buy a stock. When you buy an option, you are purchasing the ability to buy or sell an asset at a certain price at a specific time. There are two types of options: which are buying assets and selling options. As an investor, you lock in the price of a stock with the hope that it will go up in value. However, the risk of an option is that the stock could also lose money. So, if the stock decreases from its initial price, you lose the money of the contract. Options are an advanced investing technique, and retail should exercise caution before using them.
8. Savings Account.
A savings account pays you interest on your cash balance. With just a few overhead costs, one typically earns much higher interest rates at the banks. Also, you can easily and quickly transfer it directly to your primary account or withdraw at the ATM. For those who want to access the money in future, a savings account is the most appropriate for them. Most banks and credit unions offer savings accounts except that you may not get the best rates. In choosing a bank, be sure that such bank is insured so you dont worry about losing your deposits.
9. Cryptocurrencies.
In recent times, Cryptocurrencies have become the new investment option. Bitcoin being the most famous cryptocurrency, but there are countless others, such as Litecoin and Ethereum. These are digital currencies that dont have any government backing. You can buy and sell them on cryptocurrency exchanges. Some retailers will even let you make purchases with them. Cryptos often have wild fluctuations, making them a very risky investment. However, some investors use them as alternative investments to diversify their portfolios beyond stocks and bonds. You can purchase them at cryptocurrency exchanges.
10. Commodities
When we talk about commodities, they comprise of physical products that you can invest in. They are common in futures markets where producers and commercial buyers in other words, professionals seek to hedge their financial stake in the commodities. Retail investors should make sure they thoroughly understand futures before investing in them. Partly, thats because commodities investing runs the risk that the price of a commodity will move sharply and abruptly in either direction due to sudden events. For instance, political actions can greatly change the value of something like oil, while weather can impact the value of agricultural products.
Content created and supplied by: Nukegbe (via Opera News )
COMMENTS