Different Types of Investment
There are many reasons one may decide to invest. Nevertheless, the key among them is to be financially secure. After deciding that you want to invest, the next step is to know the different types of investment available and their respective characteristic. This article outlines the types and their features that in turn will help you decide on the one that suits you best.
There are many reasons one may decide to invest. Nevertheless, the key among them is to be financially secure. After deciding that you want to invest, the next step is to know the different types of investment available and their respective characteristic. This article outlines the types and their features that in turn will help you decide on the one that suits you best.
1. Stocks
Purchasing stocks from any business makes you one of the shareholders of that business. You are eligible to vote at the shareholders’ meeting and participate directly on a day-day running of the business. You also have the right to receive any dividends arising from the business. Dividends are profit earned in the business.
Stocks are volatile, in that, their values do fluctuate over time as opposed to bonds, which provides a continuous source of income. Unless the stock you bought increases in value, there will be no dividends. You are not guaranteed anything when you buy stocks. In spite of this, stocks have a potential of high returns with a high risk of losing some or entire of your investments.
2. Bonds
They are grouped under the general category of fixed income securities. Purchasing a bond means that you are lending money to the government or a certain company. The company or government in return gives you interest based on the money lent and finally funds back the whole amount.
This is a low-risk investment because you are guaranteed of your investment as long as the company or government is stable. As always, low-risk investment means low returns. As a result of this, potential return from bonds compared to other securities like stocks is generally low.
3. Mutual Funds
This is a collection of stocks and bonds. It helps one to spread their risk, and in turn increases the probability of returns from the investment. Mutual funds enable you to pool your funds with other investors; hence, you can afford to pay a professional financial advisor to select particular security strategies for you. The strategies may include bonds from government or companies, stock in certain industries or countries. The key importance of mutual funds is that you get to entrust your investments with a professional. Also, it enables you to invest even if you do not have the needed experience to choose a sound investment. This in turn will result to a possibility of high returns.
4. Alternative Investment Opportunities
Apart from the most common bonds and stocks, there are other alternative investment vehicles. These include futures, FOREX, real estates, and gold. They are high risk or high return type of investments, and therefore, they are not recommended for new investors. Their high profit is lucrative, but they do require specialized knowledge and can only be handled by professionals.
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