What is Investing? Its a process of laying out your money (assets) with an expectation of profit over a given period time. In simple words, investing is the process of making your money work for you!
Investing options can range from the least risky (most conservative) to high-risk (most aggressive) choices depending on the investor's preference. For most people, investing is synonymous with buying stocks, However, stocks are not the only avenue for investing money. There are many others —such as bonds, mutual funds, real estate, precious metals, exchange-traded funds... and many more. While all of these are arenas for investment and can fetch you good money in the long run, they are not one and the same.
This guide will help you understand the different types of investment better so that you can make better decisions.
Before we begin, there are certain terms that you need to understand:
The asset is something you currently have and you expect it to increase in value in the coming years.
Asset classes are a category of assets that are similar in characteristics—such as stocks and bonds.
Portfolio, in this case, means a collection of your assets, in one place. A diverse portfolio consists of various kinds of assets.
Holdings are all the assets in your portfolio.
Broadly speaking investment vehicles are divided into 3 categories:
1. Ownership Investments (Equity Market)
In this case, you own the asset whose value you expect to go up in time. Alternatively, you can buy a part if not the whole, and reap the profits in the days to come— these include stocks, ETFs, Stock-based mutual funds, and real estate investment trusts (REITs). These investments can provide high-reward with a high-potential risk. Other, non-equity ownership investment avenues include physical real estate, precious metals and other valuables, and business.
2. Lending Investments (Fixed Income Securities)
Lending investments come with a promise of low risk and low reward. You lend your money to the borrower and you are paid a periodic fixed interest over a given period of time. Bonds (Government, Municipal or Corporate) come under this category—you buy debt, and are repaid in time with additional interests (typically semiannually) that are fixed beforehand. These also include CD (Certificate of Deposit), savings accounts, and TIPS—US Treasury Inflation-Protected Securities.
3. Cash and Cash Equivalents
Some part of the portfolio is always made up of cash. Other investments that have low returns can also be tagged as cash investments. This could range from a savings account or a money market fund. Cash investments are short-term and bring back an interest within 90-days. Although they are low-risk, they’re also low-reward and are usually insured by the FDIC.
Other Investment Vehicles:
Many other investment vehicles are available that may be high risk and are typically suitable for sophisticated investors such as Options, Forex, Futures, or commodities, alternative investments, etc.
Which Ones Will Work Best for You?
Every investor is different and their financial goals are unique. Before you make a decision, make sure you understand your time horizon and risk tolerance and discuss it with your investment advisor.
US Investment Advisor is here to help you guide in this process!
Serving clients locally and across the United States.
To learn more about our comprehensive investment advisory and educational solutions, please visit us at www.usinvestmentadvisor.com