Exploring the World of Finance:  A Breakdown of Different Types of Investments

There are different types of investments: shares, property, cash, and fixed interest. The various types of assets are categorized into two broad groups (growth investments and defensive investments). 

Building a strong investment portfolio demands that you have a solid knowledge of these four types of investments. This knowledge is particularly needed if you’re serious about building a profitable and balanced portfolio that gives you peace of mind. 

On this page, I’ll explore the various types of investments to help save you from the nightmare and heart attack that comes with an unbalanced investment portfolio. 

1. Stock Shares Investments

Shares are categorized as undergrowth investments because they can tell you the value of your initial investment over a certain period – (medium or long term). 

Apart from buying and holding stock shares for them to grow, you can also be paid a dividend for the share you own. Dividends are simply a fraction of a company’s earnings paid to its shareholders. 

You need to know that the share price can fall below what you bought. Their prices are volatile daily, making them more profitable to long-term investors. 

Shares are considered one of the riskiest investments, but it has delivered higher ROI (Return on investment) than any other assets. 

When it comes to stock share investment, one of the best strategies to decrease risk is to buy shares and increase the chances of good profit is to buy and keep them for long-term. You also need to stay committed and try not to be caught up in emotion. Finally, purchase at the peak and sell at the trough. 

Also Read: How To Trade Like a Stock Market Wizard

2. Property Investments

Property is considered a Growth investment because the prices of houses and other real estate properties can increase substantially over a period of time – medium or long term.

Just like shares, the price of real estate properties is not stable. A property valued at $5000 today can see up to a 50% decrease in price next month. The fluctuation in price also makes this type of investment a risky one. 

3. Mutual Funds

A mutual fund is like a big jar where many people put their money together. This money is used to buy different stocks or bonds. When you put your money into a mutual fund, you’re buying a little piece of everything that the fund invests in.

People Also Read: Comprehensive Guide On How to Buy Cryptocurrency in Hawaii

4. Cash Investment

Cash Investments refer to daily bank accounts, term deposits, and high savings accounts. These types of investments basically carry the lowest return on investment (ROI). 

They also offer no capital growth opportunity. However, they offer constant income and play a vital role in safeguarding wealth. They also help reduce the risk in your investment portfolio to a minimum.

5. Fixed Interest

Fixed-interest investments, also known as fixed-income investments, are investment vehicles that provide a fixed rate of return over a specified period. While there are several types of fixed-interest investment, the bond types of fixed-interest investment are the best. 

When you invest in fixed-interest instruments like government or corporate bonds, you lend money to the issuer in exchange for regular interest payments and the return of the principal amount at maturity. 

These investments are considered relatively low-risk compared to stocks because they offer a predictable income stream and are typically backed by the issuer’s ability to repay the debt. Fixed interest investments are favored by investors seeking stable income and capital preservation. 

6. Bonds investments 

Bonds investments are when investors lend a company or government money, and the government or company pays the investors interest in return. Bonds are categorized as defensive because they usually give a low return on investment. And they also have a lower risk level than growth investment (property or shares).

You can easily and quickly sell this type of investment. However, it’s important to remember that they’re not totally risk-free. They have a certain amount of risk of capital loss associated with them. But not as high as that of growth investment. 

7. Exchange-Traded Funds

Exchange-traded funds, or ETFs for short, are similar to mutual funds because they’re a collection of different investments that track a market index. The difference is that shares of ETFs are purchased and sold on the stock market, while mutual funds are bought via fund companies. 

The price of ETFs is volatile, while mutual funds’ value is the net asset value of your investments calculated at the end of every trading period. 

People Also Read: Discover the Top 5 Career Opportunities in Caregiving Industry

How to Buy Different Investment Types

When it comes to purchasing different types of investments, there are two primary methods, both of which require an active investment account. Each approach has advantages, and the choice ultimately depends on your preferences and financial goals. Here are the two general ways to buy the investments you desire:

1. Create an Online Brokerage Account

One option is to create your brokerage account and manage your investments independently. This allows you to quickly establish an account and gain access to a wide range of investment options, such as stocks, bonds, mutual funds, and more. 

Creating an online brokerage account is a straightforward process that can be completed within minutes. However, it’s important to note that you will be solely responsible for making all the financial decisions.

2. Hire a Financial Advisor

Alternatively, you can hire a financial advisor to assist you in purchasing different investments. A financial advisor provides access to various investment opportunities and can help develop an overall financial strategy and adequately prepare you for retirement. 

This approach is more hands-off, as the advisor handles the intricacies of executing trades and managing your investments. You simply need to approve the trades or investment decisions. If necessary, your advisor can guide you through the process of opening a brokerage account.

Deciding between these two methods depends on factors such as your level of financial expertise, time availability, and personal preference. Both approaches offer benefits. So evaluating your goals and considering seeking professional advice if needed is essential. Investing involves risk, and it’s crucial to conduct thorough research before making any investment decisions.

People Also Read: Top Personal Financial Planning and Analysis Tools: Free & Paid

Final Thoughts

Building a solid investment portfolio requires you to know the various types of investments. However, without the right knowledge, you’ll have difficulties choosing the right investments to have in your portfolio. With the information shared here, you can boldly hit your chest and say that you know the different types of investment that exist.