Investing Basics – Different Types of Investments
To understand investing is one of the most difficult decisions that a person can make. To make investments is to put your money into a bank account with the hope of a return/profit in the near future. Simply put, to make investments means owning an object or an asset with the express purpose of making money from the interest or the appreciation of that object over an extended period of time or an indefinite period of time. Investments may be made for short term (as in the case of day trading or forex) or long term (investments in stocks and bonds).
There are many different ways to approach investing and the process varies slightly depending on the individual needs of the investor. For example, some people may prefer to have their money tied up in cash and short term assets (like bonds) while others (including many large corporations) prefer to have their money spread out over a number of different investments (like stocks and bonds). Another way of looking at investing is buying and holding, where you invest your money in an array of different assets (like equities, bonds, commodities). Or you could opt for long term investing which is buying an asset (a stock or a bond) over an extended period of time-for example 20 years. Of course, when you are looking at buying stocks and bonds you need to ensure that the company is likely to survive and will profit in the future for you to gain access to your investments.
So as you can see, there are a variety of different ways of investing and each of these has its benefits and disadvantages. The main decision to make is which way you want to invest and what sort of returns and risk you are prepared to take on. You should also consider your long-term goals and whether these are achievable with the type of investments you are intending to use. For example, if you want to achieve higher returns then you are likely better off buying and holding your investments, but if you want to set yourself some specific financial targets then you may benefit from a different type of investment.
The most popular choices are either investing in stocks and bonds or buying equities-with both options providing lower returns but much higher chances of achieving higher returns in the long-term. As stocks have been seen to generally outperform bonds over the long-term, many people choose to take this route, although equities also come with their share of risks. Some people prefer to choose stocks because they offer lower returns, and these can be achieved through the use of low-risk investment products such as penny stocks.
EFTs are a relatively newer concept, although they have had considerable success. EFTs are an investment fund that invests in low risk entities such as the index of currencies or baskets of currencies. EFTs are very similar to mutual funds, except that instead of actively buying and selling individual securities, investors trade directly with an EFT and as a result there is substantially less risk associated with EFTs. EFTs have also been credited with reducing the level of trading activity during the Global Financial Recession, therefore helping many individuals to avoid financial difficulties as their investments were hit hard by the recession.
There are three different types of fixed income: bonds, mutual funds, and common equity funds. Bonds are typically chosen for more long-term investment needs, with good expected returns, while funds and common equity are chosen for short-term speculative reasons. Investing in bonds directly is usually the preferred option of those wishing to obtain good returns, but investors can diversify their portfolio by investing in mutual funds instead. Investing in bond funds can diversify your portfolio significantly without placing all of your money into just a few asset classes.