Investments Types – Beginners Guide
As an Invest Diva, you probably already know the definition of investment; a commitment of funds, expecting a positive return or preserving value. Now you might be asking, what are different investments types? Here is a quick guide to different types of investment that can help you reach your financial goals.
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Investments Types - Rewards
The rewards, or returns, from investing come in two basic forms: income and increased value.
investments types - Rewards
- Money invested in a savings account with positive interest payments, provides income.
- Investing in stocks that pay dividends, also provide income.
- However investors often invest in the financial markets because they expect increased value.
Common stocks can sometimes provide both income and the chance of increase in value.
Investments Types - Attributes
When you invest, the market you invest in offers you the potential of future benefit in exchange. Why? Because they are using your funds while your money is parked in their organization.
Since organizations are fighting with each other to get you to invest your money, they offer you a variety of investments types. From virtually zero-risk savings accounts at a bank, to shares of stocks in high-risk companies, and even to highly volatile currency exchange (forex) market.
Here are the main two attributes to investments:
1 - Security of Property?
- Securities are issued by firms, government, or other organizations.
- Properties consists of investments in real property or tangible personal property.
2 - Direct or Indirect?
- A direct investment is purchasing stock in a company.
- An indirect investment is purchasing a mutual fund that buys the stock.
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There is a ton of investments types available to individual investors. As we have covered in our education courses, investments differ in terms of risk, maturity, and many other characteristics.
Here is a quick list of investments types we cover in our Make Your Money Work for You PowerCourse.
investments types - stocks ETFs Derivatives Forex
Investments Types - Stocks
Stocks investment represents ownership in a corporation. Return on investments come from: 1) Dividends, 2) Capital Gains.
Investments Types - Fixed Income Securities
Fixed income securities are investments that offer a periodic cash payment that may be fixed in dollar terms or or may vary.
This includes Bonds, Convertible Securities and Preferred Stocks.
Fixed income securities are popular during periods of high interest rates. Because investors want to lock in high returns.
Investments Types - Mutual Funds
A Mutual Fund is a portfolio of stocks, bonds, etc. that was purchased with a pool of funds contributed by many different investors. Here are some of its characteristics.
- Managed by an investment company on behalf of clients.
- You buy shares in the fund (not shared in the companies).
- Well diversified.
Investments Types - Exchange Traded Funds (ETFs)
Very similar to Mutual Funds BUT …
- You can buy/ sell at current market price (like stocks).
- Invest during regular trading hours.
- There is no net inflow/ outflow of money into the company that manages ETF.
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Investments Types - Hedge Funds
A Hedge Fund pools resources from different investors. It is ...
- Open to smaller group of investors than Mutual Funds.
- That is why you'd need more money needed to get involved.
- Invest in riskier assets.
Investments Types - Derivative Securities
As the name suggests, derivatives derive their value from an underlying security or asset. They are designed to magnify price changes of the underlying asset. Most common derivatives include;
With options, you get the “option” to buy or sell at a specific price over a given period of time.
- Buyer is not guaranteed a return and could lose the whole thing.
Futures are a legally binding obligation to buy/sell in the future.
- The seller will make delivery.
- Buyer will take the delivery.
- At a specific date.
- At a price agreed on at the time of contract.
Trading in commodity and financial futures is high-risk.
Investments Types - Real Estate
This one is very popular among Persians living in the U.S. (think, Shahs of Sunset.)
- Takes longer, but rewards could be higher.
- Potential of rental income, tax write-offs, capital gains.
Investments Types - Forex
Forex is short for Foreign Exchange, which basically means exchanging one currency for another. When investing in the forex market you ...
- Take advantage of market fluctuations.
- Take on really high risk.
As you can see, there are so many investments types you can consider to reach your financial goals. Now you may be asking, which types if investment is the most suitable for you?