The 15 types of investments you need to know are the different assets available to choose from when thinking of where to dedicate your money at present and earn a future reward. Stocks are among the types of investments you need to know.
Each of these investments has its features as well as profits and losses. You must have a good knowledge of each one in other to make the best choice when making a decision.
These 15 types of investment in a way encourage you to think of committing your money to a project, as the options are many to choose from.
Types of Investments
Among all the types of investments shares, also called equity or stock are one of the most profitable securities. You can think of shares as a means of gaining income during retirement age.
Shares are units of capital an investor dedicates to a company, which automatically makes the investor a shareholder and co-owner of such a company.
According to the company’s board of directors, the investors who are now the shareholders partake in decision-making as well as in the share of profits and losses.
Companies derive their source of funds from the sales of different shares. Hence, we have ordinary shares, deferred shares, non-voting shares, redeemable shares, cumulative preference shares, etc.
Shares can be very profitable but unlike every other thing that has a negative aspect, there are also risks.
A commodity is another type of investment that yields profit. It is the purchase of raw materials like mineral products and agricultural goods.
Anyone can engage in commodity investing but needs more experience as inflation, geopolitics, and location may pose a threat.
The risk associated with this type of investment is minimal but depends on the level of expertise. Most types of commodities can be multifaceted because of some unavoidable conditions, which may influence price negatively. Circumstances like seasons and a change in the economy.
One good thing is that with commodity investment an investor can diversify thereby buying goods when the condition is favorable and selling at the same favorable condition in the future.
We have different types of commodities, which are, Agricultural products like crops and livestock. Raw materials like metals, minerals, and forest resources.
(3) Mutual fund
A mutual fund is a type of investment managed by experts in the field. Those professionals collect money from different investors who share the same investing ideology.
They use the money to purchase different securities. The risk involves the possible loss of principal and the rise and fall in price.
The profits from these securities are shared quarterly or annually depending on the type of security. We have four types of mutual funds they include stock funds, money market funds, bond funds, and target date funds.
An annuity is a contract between an investor and the insurance company whereby the investor pays money regularly at present. Then the insurance company in return pays back a steady income at retirement.
This plan is to help you at retirement age. Annuity generates interest that could convert into a steady income stream at retirement.
We have different types of annuity, which include fixed annuity, variable annuity, and differed fixed and differed variable annuity.
The negative side of annuities includes company liquidity and the dying age of the investor.
Unlike shares, bonds are also securities. It is a type of investment where an investor deposits a certain amount of money to a company for a period. This deposit could be a loan to an insurance company. The company pays interest to the investor who equally receives back the capital at maturity.
The downside of the bond includes that it may not yield good interest in a favorable economy. Hence, bonds may not be a profitable investment but may only become profitable during inflation.
We have corporate bonds, treasury bonds, agency, savings, and municipal bonds, and each of these bonds has its risk and safety.
(6) Real Estate
Real estate is also called property investing, it is a type of investment whereby investors acquire material goods like land, estate, houses, and warehouse stores in the early time and resale the assets in the future for a higher amount.
It is one most profitable types of investment so far. They could purchase those goods like land when the price is low and wait for a future time when it increases in value. Real estate investment can be permanent and subject to multiple uses but it has a risk of destruction by fire, flood, and erosion.
(7) Certificate of deposit
A certificate of deposit is a type of investment that allows an investor opens an account with a large sum of money and decides not to withdraw for a long period. A certificate of deposit attracts a higher interest rate than an ordinary savings account or fixed deposit.
The negative side of this type of investment is the payment of a penalty resulting from withdrawing your money before the maturity date. Some certificate of deposit includes traditional CD, broker CD, liquid CD, and bump-up CD.
(8) Exchange-traded fund
This is another type of investment you need to know, exchange-traded fund deals with the stock exchange. Like the mutual fund, it comprises different securities that investors pool money together to purchase.
It has the option of diversification and is easy to trade. Finance professionals also manage it, it has low risk as it comprises diverse securities.
Cryptocurrency investment makes do with digital currencies; however, it is not a real asset due to its online purchase. This method utilizes an exchange of real dollars for a token. This investment does not utilize a safe method, as there are many risks associated with it.
It has no reliable source and no middle agent, unlike other securities. It has no bank or monetary regulations to guide the transaction. Thus, you can lose money, which is not refundable.
So, what is the advantage anyway? It makes the transfer of funds easy and a direct control over your investment.
(10) Fixed Deposit
A fixed deposit is a financial instrument that allows investors to earn Interest based on the amount and duration of their investment. In other to guarantee a fixed deposit the investor has to deposit a lump sum of money, the amount to deposit varies with banks.
Any amount deposited has its fixed interest rate while at maturity the investor gets back both capital and the accrued interest. This is one type of investment that almost shares similarities with a certificate of deposit but it has its differences.
The difference lies in the fact that a fixed deposit is not negotiable while the former is negotiable. Again, the amount to deposit varies between both. It has a risk of low return and liquidity.
Some different types of fixed deposits include cumulative fixed deposits, non-cumulative fixed deposits, senior citizen fixed deposits, and interest rates.
Derivatives are securities, which has a price derivative on other underlying assets while seasonal fluctuations determine the value. It is a contract between two parties; investors can trade privately or on an exchange.
This type of investment is more profitable and an easy way to attain financial goals. Types of derivates include swaps, options, and forward derivatives. The risk can be high resulting from high instability.
(12) Money market fund
A money market fund is a low-risk and stable investment compared to other mutual funds, it is also a money market mutual fund. A kind of security that invests in highly liquid, short-term debts instrument and pays dividends to investors as profits. Those instruments could be cash.
Short-term debt enables investors to avoid some risks and the consequence of not having to be paid. Some type of money market fund includes the Eurodollar, short-term US treasury, and certificate of deposit.
(13) Savings account
A savings account is also another type of investment where you can safely deposit cash in any financial institution. Interest from this deposit is paid according to the quantity of amount and how long the investor withheld the sum from withdrawal. Although, the interest rate differs from each bank but can still be encouraging with some banks.
The negative side of this investment is that it does not encourage saving for the future as you can easily withdraw at any time over the counter or digitally. Some types of savings accounts include certificates of deposit, basic savings, and digital savings.
(14) Retirement Plan.
This type of investment helps to take care of an individual or investor’s retirement days when the income stops. Here the investor buys a retirement plan and regularly contributes some amount to the project. Then at retirement, a steady income becomes available, it sometimes serves as life insurance cover.
It helps the investor live a financially free life. It has zero risk, is very profitable, and security free. Some types of retirement plans include traditional IRA, simple IRA, and simple 401k.
Options are a type of investment that allows investors to purchase and sell securities at a specified price and time. It is a contract, which gives the right but not an obligation to investors to purchase and sell a security.
Options are profitable investment plans although they can be risky if the purchaser does not have a good knowledge of them. Two types of options include calls and puts.
You need to know
You need to have a good knowledge of these 15 types of investments as you think of committing your money to a plan knowing too well that investment is a good way of planning for a brighter future.
Therefore, we deem this article very important, as you might be thinking about the type of investment to embark on.
Having a good knowledge of the above assets could help you start making decisions on where to begin. Hence, it provides you with fundamental information that will put you on track to choosing any of the methods.