Have you ever thought about beginning your journey investing your money in investments? I am sure we have all come across stories of people living off their investments, and thinking to oneself, how can I get started? The first thing you need to do in this journey is understand what investing is, how it works, and that there are different types of Investments you can make.
Investments come in different forms and types. In this article, we will explain some of the different types of investments, though we will not go into full detail of each. If you do find you are interested in an investment, it is recommended you do further research to understand that investment before you commence investing.
Cash Investment - High Interest Saving Account
This type of investment will provide you with a regular and stable income through interest payments. The bigger the monetary sum you invest, at a certain interest rate, the bigger the interest payments. One thing to note is that though this is a low-risk investment, the value of your cash could decrease, even though the dollar figure remains the same. This could be caused by inflation, where your money buys less than it used to.
Fixed Interest - Term Deposit
Term Deposits let you earn interest by investing an amount for a specific term. You cannot use this money during the duration of this term, that way you cannot spend it. This is both good as it helps you avoid spending, while earning interest on the amount you have invested.
Fixed Interest - Government or Corporate Bonds
Bonds are essentially loans you provide to governments or companies. Bonds are issued by governments and corporations when they want to raise money. Governments and companies sell bonds to investors for a fixed period of time and pay these investors a regular rate of interest. At the end of the fixed period of time, the price of the bond is repaid to the investor.
Growth Investment - Shares
Shares are units of equity ownership in a corporation. Some companies, shares exist as a financial asset whereby profits, if any are declared, are distributed in the form of dividends. You can also be a shareholder in a stock that pays no dividends and does not participate in a distribution of profits, instead anticipating growth of the stock price as the company profits increase and selling your stock when you see a profit will be made.
Growth Investment - Property
You can invest in property by purchasing property, having done your due diligence to know whether the price of the property will increase or decrease. You must take various factors into account, including zoning of the land, work you can do on the property to increase its value, the location of which the property is situated, and future plans around the zoning of the area. If property prices climb, you could find yourself earning a profit if you were to sell. However, it is also worth noting that you could lose money if property prices fall. Doing work on the property, by way of renovations, is always a good start, and can be a quick way to see the price of the property climb. It is always good to engage property experts, and builders before purchasing a property to understand the full picture in relation to the property.
Mutual Funds
Mutual funds let you and other investors pool your money to mutually buy securities (stocks, commodities, bonds, or a mixture of investment types). They are run by professional money managers who decide what securities to buy and when it is appropriate to sell them. You open yourself to all the investments in the fund and income that the funds may generate.
Exchange Traded Funds (ETFs)
Like mutual funds, exchange traded funds are also managed by professional money managers and comprise individual stocks and bonds. ETFs can be purchased and sold on a stock exchange the same way as a regular stock, mutual funds cannot. ETFs are a basket of securities that trade on an exchange much like a stock does. ETFs’ share price fluctuates at all times of the day as the ETF is bought and sold. Mutual Funds on the other hand only trade once a day after the market closes. ETS are called exchange traded because they are traded on an exchange just like stocks.
Certificates of Deposit (CDs)
Certificates of Deposit are a saving p product. They earn interest on a lump sum for a fixed period. CDs are different to savings accounts as CDs usually have higher interest rates as an incentive for liquidity, and the funds within the CDs must remain untouched for the entirety of their term or risk penalty fees or lost interest. Most financial institutions will offer CDs. It is worth noting, when looking to invest in CDs, it is best to look around at the different consumer financial institutions as they will offer differing CD rates.
Options
A stock option is a contract that offers the right to buy or sell (depending on the contract they hold) the assets underlying the contract. Options contract will have a specific expiration date by which the holder must exercise their option. These contracts involve the buyer paying a premium for the rights granted by the contract. Call options allow the holder to buy the asset at a stated price within a specific timeframe. Put options allow the holder to sell the asset at a stated price within the specific timeframe.
Annuities
An annuity is a lifetime or fixed-term pension, which gives you a guaranteed income for a number of years. You can buy an annuity from a super fund or life insurance company. You choose whether you want payments to last for a fixed number of years, your life expectancy, or the rest of your life. Annuities can be purchased from insurance agents, financial planners, banks, and life insurance carriers. Annuities can be complex, choosing from a single premium immediate annuity, a deferred payment annuity that’s variable, a fixed indexed annuity. There is also a lot of vocabulary you need to learn to understand the different types of annuities.
Derivatives
Derivatives are considered a form of advanced investing. Derivative investments are investments derived, or created, from an underlying asset, group of assets, or benchmark. There are two types of derivative products “lock” and “option.” Lock products (e.g., futures, forwards, or swaps) bind the respective parties to the agreed-upon terms over the life of the contract. Option products offer the holder the right, but not the obligation, to buy or sell the underlying asset or security at a specific price on or before the options expiration date. Prices for derivatives derive from fluctuations in the underlying asset.
Commodities
A community is a basic good use in buying, selling, trading, (commerce) that is interchangeable with other goods of the same type. Commodities are usually used in the production of goods (product) and services. Usually, commodities are raw materials (oils, foods, metals etc.) used to manufacture finished goods whereas products are the finished goods sold to consumers. You can invest in commodities by purchasing the commodity itself, investing in commodity future contracts, buying commodity exchange traded funds (ETFs, as spoken off above), or buying stocks and shares in companies that produce commodities. You can also trade and invest in commodities in online markets.
Conclusion
Overall, we have taken a basic look at some of the different types of investments. Before making an investment, it is worth doing your research first so that you understand the product, you see its history in terms of prices to try work out how likely it is to fluctuate, and whether it is worth the risk or not. If you are unsure about investing, you can go see a financial planner to understand the various investments and financial instruments. You can also read books, browse the internet, and watch videos to learn more about investing. Moreover, if you intend to invest using online platforms, it is good to learn how to use the platforms first so that you know what you’re doing and what is happening. See more of the different investments
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