The investment world is crammed with diverse information that can make your head spin. Nevertheless, if you are keen to understand investment and all that if entails, it makes sense to do the necessary research and arm yourself with important details that will guide your investment decisions. Of course, before investing, you’ll need to know what investing is and the types of investment.
The four types of investment are stocks, bonds, mutual funds and options. While each investment promises investors returns, they come with different features and risks.
Before establishing a business, you are required to research your target audience, create an obvious online presence, engage in effective marketing, etc. The same applies to investing. Before investing, you’ll need to understand what investing is, how it works, including the types of investments to leverage. Lucky for you, I have provided you with information regarding these topics and topped (or rounded it up) it up with the four types of investments.
What Are the Four Types of Investment?
There are many ventures that can help you put food on your table, and cover your daily expenses. But these ventures cannot offer you the financial freedom you deserve, or dream of as they aren’t flexible and your earnings are affected by several factors.
If you want to be wealthy, that is, spend money without restrictions, you’ll need to consider investing.
What Is Investment?
Investment is a common name. But, regardless of how common and widespread the word is, not everyone understands what an investment is. If you are among the bandwagon, here is a little definition of an investment.
Investment is simply using your money to buy asset anticipating that it will generate Income over time or appreciate.
Consumption, on the flip side, is when you but something with the immediate intent of personal use and with zero anticipation that it will generate money or rise in value.
Investment also affects the economy positively as it fosters economic activity, such as the buying and selling of goods and services and employing individuals. Employed individuals get paid and either stash the money in their respective banks, throw the money in an investment vehicle, or spend it. If you they spend their money, businesses earn more in the process. Businesses can then reinvest the profits in an investment vehicle, thus stimulating the economy and promoting growth.
Definitely, too much of a good thing can be bad. If everyone is putting his or her money in investments, then who will be consuming? No one, of course. And if no one is consuming, consumer-orientated businesses, like restaurants and retail establishments, will bear the brunt. This may result in layoffs. The key is to locate the perfect balance between investment and consumption.
Who Is an Investor?
Having known what an investment is, the next important thing I’ll like you to understand is the term “investor”.
An investor is an individual or entity that uses capital to purchase an asset with the aim of generating income in the future. As am investor, you can select from a panoply if investments such as stocks, bonds, real estate, and so on. Investing also gives you the opportunity to create diverse sources of income and create passive income streams.
Unlike stashing your money in a bank, all investors take on some risk, thus making this venture suitable for risk takers.
Also, as an investor, ensure you have it in mind that as you build your investments, there is a chance of losing the funds. So ensure you do your due diligence before embracing an investment vehicle.
A stock is a common type of investment made in a specific company. When you buy a stock, you are buying a share (a little piece) of that company’s earnings including those assets.
Companies sell shares of stock in their business to generate cash; investors can then purchase and sell those shares within themselves. Stocks sometimes earn huge returns, however, it also comes with greater risks than other investments. Companies can go under, lose value, thus leading to the collapse of their shares and the loss of your money.
A bond is simply a loan you make to a company or government. When you buy a bond, you are allowing the bond issuer to borrow your money and pay you back with interest.
Unlike stocks, bonds are deemed less risky. However, they also may offer investors lower returns. The main risk, as with any loan, is that the issuer could default. United States government bonds are backed by the “full faith and credit” of the U.S., which discards that risk.
If you want to invest in bonds, it is best you consider state and city government bonds as they are less risky than the other types of bonds.
Furthermore, worthy to note is that the less risky the bond, the lower the interest rate.
If you don’t like the ideal of selecting and choosing individuals bonds and sticks, there are other investments lined up as alternatives.
Mutual funds allow investors to buy a huge number of investments in a single transaction. These funds pool money from multiple investors, then employ an expert to invest that money in investment vehicles like stock, bonds, and so on.
Options is another lucrative type of investment that you should consider.
An option is a contract to buy or sell a stock at a specific price, by a predetermined date. Options provides investors with flexibility, as the contract doesn’t actually obligate you to buy or sell the sock. As the name implies, doing so is an option. Most options contracts are for 100 shares of a stock.
When you purchase an option, you are purchasing the contract, not the stock itself. You can then wither purchase or sell the stock at the agreed price within the specified time; sell the optional contract to another investor; or leave it to expire.
What Are the Main Investment Types?
Before investing you need to understand a few things about investment. First off, you need to know what investment is. Afterward, you need to know the main types of investment so you can select based off this category.
The main investment types are stocks, bonds, options, index funds, and exchange traded fund.
While selecting an investment, ensure you embrace that which suits you and your financial goals.