Updated: Jun 6
Most people understand what’s meant by investment: you have some, you don’t spend that money. Instead, you give that money to someone that makes more money off it, and gives you some of the profit along with the money back. In a few years’ time, you will have generated more money from where you started.
Most people also know that the most common avenue for investing money is stocks and bonds. There are others, of course—such as gold, real estate, mutual funds, etc. While all of these are arenas for investment, and will 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:
Asset is something you currently have that’ll have increased value in the coming years.
Holdings are all the assets in your portfolio.
Portfolio, in this case, means a collection of your assets, in one place. A diverse portfolio consists of various kinds of assets.
Asset classes are a category of assets that are similar in characteristics—such as stocks and bonds.
In this case, you own the asset whose value is supposed to go up in time. Alternatively, you can buy a part if not the whole of such assets and reap the profits in the days to come—these are called stocks. Other ownership investment avenues include real estate, precious coins and other valuables, and business.
Lending investments come with a promise of low risk and low reward. These are thus safer but the rewards aren’t as big. You buy a debt that’s repaid in the future—sort of like what a bank does. Bonds come under this category—you buy debt, and are repaid in time with additional interests that are fixed beforehand. These also include CD (Certificate of Deposit), savings accounts, and TIPS—US Treasury backed bonds.
Some part of the portfolio is always made up of cash. Other investments that have low return can also be tagged as cash investments. This could range from a savings account or a 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.
Which Ones Will Work Best for You?
Deciding which type of investment is your cup of tea depends on:
(a) How much you can spare in investments, and
(b) How soon do you expect the results.
Your experience in the market is also a requisite. If you’re a beginner, we’d suggest going for one of the low-risk and low-reward investment arenas before delving into one of the bigger markets. But before jumping into that, make sure you know all there is to know about investments, building portfolios, and making successful strategies.
If you don’t know where to begin, sign up for an online stock trading course being offered by US Stock Advisor. You can schedule a call with our Raleigh stock advisor and find out more about our learning center here.