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Know investment types under 10 minutes

Dec 25, 2019
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find what suits you

What are the investment types out there? What are some of the best ways to invest your money?

You may be a seasoned investor or you could be a young just graduated from school looking to start your first investment. You are in your 20s, 30s, 40s or all the way in your 60s and 70s. But have you thought of which is the best investment to go after?

Well, not all investment type suits anyone. It depends on your capital to invest, the right opportunity, the amount of risk you are willing to take and so on. The more commonly known are the stocks and bonds.

 

Stocks and bonds

 

stocks market

Stocks and bonds are two of the most traded items. You can find them on sale on various platforms and markets. Stocks are actually shares, also known as equity in a publicly traded company. The bonds are basically fix income loan the investor makes to a government or corporate entity. This is the most common investment type out there.

 

Stock market

 

The stock market is a place where investors go to trade securities such as common stocks and derivatives. these derivatives including options and futures. Stocks are traded on stock exchanges.

The main function of the stock market is to bring buyers and sellers together into a fair, regulated and controlled environment where they can execute their trades. There will be confidence that trading is done with transparency. It is also that pricing is fair and honest. This regulation not only helps investors, but also the corporations whose securities are being traded.

The economy will thrives when the stock market maintains its robustness and overall health.  While bondholders lend money with interest, equity holders purchase small stakes in companies on the belief that the company performs well and the value of the shares purchased will increase. Buying stocks means you are buying a very small ownership stake in a company.

 

Bond market

 

The bond market does not have a centralized location to trade. Bonds are mainly sell over the counter (OTC). It also means individual investors do not typically participate in the bond market. Those who participate are large institutional investors like pension funds foundations, and endowments, hedge funds, investment banks and asset management firms. For individual investors who wish to invest in bonds, they do so through a bond fund managed by an asset manager.

Mutual fund

 

funding

Sometimes, the idea of picking and choosing individual bonds and stock is not your preference. So there is the mutual fund for people like you.

Mutual funds allow investors to purchase a large number of investments in a single transaction. These funds will pool money from many investors. It then employ a professional manager to invest that money in stocks, bonds or other assets.

Mutual funds follow a set strategy. A fund might invest in a specific type of stocks or bonds, like international stocks or government bonds. There are some funds that invest in both stocks and bonds. The level of risk for mutual fund will depend on the investments within the fund.

How it works- when a mutual fund earns money through stock dividends or bond interest, for example, it distributes a proportion of that to investors. So if investments in the fund go up in value, the value of the fund increases as well. This will means you could sell it for a profit. Note that you have to pay an annual fee, called an expense ratio to invest in a mutual fund.

 

Index fund

 

Index fund is actually a type of mutual fund. It has a portfolio constructed to match or track the components of a financial market index. An index mutual fund is to provide broad market exposure, low operating expenses and low portfolio turnover. It is best for retirement accounts (IRAs). Investing in an index fund is a form of passive investing.

The fund manager builds a portfolio whose holdings mirror the securities of a particular index. So by mimicking the profile of the index, the stock market as a whole, or a broad segment of it—->he fund will match its performance as well.

 

Options

 

Option is a contract to buy or sell a stock at a set price by a set date. Meaning of options- offer flexibility as the contract doesn’t actually obligate you to buy or sell the stock. To do so is an option. Most options contracts are for 100 shares of a stock.

To buy an option, you’re buying the contract, not the stock itself. You can then either buy or sell the stock at the agreed-upon price within the agreed-upon time. Sell the options contract to another investor; or let the contract expire.

Options as an investment type is complex. But at a basic level, you are locking in the price of a stock you expect to increase in value. If things go well, you benefit by purchasing the stock for less than the going rate. If it is wrong, you can forgo the purchase and you’re only out the cost of the contract itself.

 

Reits

 

Reits is a real estate investment trust. It mostly operates in income producing real estate.  These REITs invest in real estate properties and distribute revenues generated from these assets (primarily rental income). they do so at regular intervals to REIT holders. They are run by professionals like reit manager or property manager who will charge a fee in exchange for their service.

The way you buy them is the same way that you will buy a stock. It can get a little complicated. Below is a diagram to help you understand:

understanding reit

Now we shall take a look into alternatives investment. Well, what are these investment? They are generally defined as those that do not fall under the typical classes of financial assets, such as stocks, bonds and cash. These promise higher returns but have less transparency. It is also less regulated thus carry a higher risk to invest.

 

Forex

 

money trading

Forex (FX) is traded 24 hours a day, 5 days a week across by banks, institutions and individual traders worldwide. It is a portmanteau of foreign currency and exchange. There is no centralized marketplace for forex. The currencies can be trade over the counter in whatever market is open at that time.

The basic concept for this investment type is this: Similar to other speculative activity, you buy a currency at one price and then sell it at higher price. Alternative is sell currency at one price and buy it cheaper to made a profit.

In forex, traders attempt to profit by buying and selling currencies by actively speculating on the direction currencies are likely to take in the future. The most widely traded are the USD, EUR, GBP among many others. Currencies are traded against each other as exchange rate pairs, example, EUR/USD. Trading is done in a FX exchange.

Disadvantage is, forex trading in some parts of the world is unregulated. Forex markets are the largest in terms of daily trading volume in the world and therefore offer the most liquidity.

 

Gold & Silver

 

metals trading

Precious metals like gold and silver has been traded by men for centuries. These are physical investment. It is its high reliability due to being a physical asset that make it so attractive. Gold and silver are tangible asset with no counter-party risk or default risk. Investors can invest in gold through Exchange Traded funds (ETF).

Everyone knows about gold and you can’t be wrong on it’s saleability. Gold had in the past backed the US currency. The central banks and other organization like International Monetary fund holds about one fifth of above ground gold. The main advantage is gold preserves wealth. Gold can be used as a hedge against the dollar. Dollar can lose value through inflation but gold will be stable most of the time. But gold have several time under performed.

Silver is surely the type of metal to look out for as its demand outstripping supply. This mining output set to shrink in the future. The silver market looks fundamentally strong. It also retains its purchasing power over long-periods of time, as well as gold. It is thus suitable as a store of value and as a long-term hedge against inflation.

 

Popular gold trading brokers

 

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Cryptocurrencies

 

We surely cannot forget cryptocurrences. Cryptocurrency is a digital asset that can work as a medium of exchange, which uses strong cryptography to secure financial transactions. The most well known cryptocurrency is bitcoin, first launched in 2009. By Nov. 2019, there were over 18 million bitcoins in circulation with a total market value of around $165 billion.

When bitcoin is initially been use for gaming purpose in games like Diablo, hardly anyone takes notice. It grew in popularity in subsequent years and reached its peak in end of 2017. What makes cryptocurrency an attractive form of investment is it’s limited supply and most importantly it’s running on blockchain technology. With such high potential, it is a no brainer to assume it will increase in value as the years passes. It could even replace fiat in the future.

Bitcoin will reach halving at certain point which only increase in value. Beside bitcoin, there are almost thousands of other cryptocurrencies with the more popular ones like Ethereum, Xrp coin and Binance coins. Cryptocurrencies are mainly purchase from cryptocurrency exchanges. Most people will have interest to buy bitcoin which is a “digital coin”.

Many have since side out. But it is still a good investment.


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