Investing in the simple act of putting money into a project, asset, or other undertaking in the attempt to earn a profit. However, the investment landscape can feel like a tangled web of complex asset classes, strategies, and jargon. Therefore, it’s important to learn as much as possible before parting with your hard-earned cash. With this in mind, continue reading to learn about the most common types of investment`s.
Stocks
Stocks are the most well-known type of investment. This involves becoming a shareholder in a business, which means owning a fraction of the company. Naturally, when the business does well and improves in value, the stock price increases, and you earn a profit. Conversely, if the value drops, there’s a risk of losing money. Some stocks are more worthwhile than others, such as those paying dividends, as they are often considered less risky because of the regular income.
Funds
Funds are shared investment pools managed by a business or individual. By combining the total cash investment of the members, investment managers can invest in higher assets ranging from stocks to commodities. The most well-known funds are ETFs (exchange-traded funds) and mutual funds. ETFs are valued constantly thought the day and mutual funds are valued at the end of the day.
Even though funds have become increasingly popular and make for a fantastic diversification technique, they come with strings attached. For example, you need to pay a fee to the investment manager, and you have little control over where your assets are invested.
Bonds
Bonds involve investing in debt, whether that be attached to a government, corporation, municipality, or other entity. Essentially, you own a share of the debt and become entitled to earn interest payments. Once the bond has matured, you can then return the bond at the price you originally bought it for.
Options and Derivatives
Derivatives are an investment type that pulls their value from an underlying asset like an index or stock. A common type of derivative is an options contract, which allows the buyer and seller to agree on a price in advance of a sale. This locks the seller into honoring the price but gives the buyer the flexibility to withdraw. If used in the right way, option selling and buying can bring in a lot of profit, but it comes with relatively high risk attached.
If you’re a beginner trader, then make sure you learn everything can about derivatives, especially considering they often use a lot of leverage. There are plenty of places where you can find option trading tips including podcasts, blogs, YouTube videos, and books from professional traders.
Commodities
Businesses and other entities aren’t the only asset class to consider; it’s also possible to invest in commodities, which includes grain, oil, metals, currencies, and animal products. They are often traded through ETFs or commodity futures, which involve agreeing on a price and making a purchase in the future.
When you first start investing, you’ll most likely feel overwhelmed. Using the information you’ve learned above, you can now go on to do further research before you get started.
