If you’re reading this, that means you have made the wise choice to become an investor and are ready to begin your investment journey. Perhaps you’re not a beginner, but you haven’t understood the intricacies of making smart investments yet. Either way, seeking knowledge is the surest path to make the right decisions.
Investment is a world that is laden with many risks — but also massive gains. Only the ones that are duly informed can make the best out of it. There are different types of investment schemes where you can invest your money. Some yield much profit in short periods; others may take years to bring gains.
This guide will show you the various types of investments and which ones are the smartest ways to plant your money.
The 3 Main Types of Investments
Understanding the different types of investments is the easiest way to know where to invest your money. There are three main types of investments. Let’s looks at them below —
- Stocks: These are typically investments made in a specific company. Buying a stock means buying a small portion (a share) of the company’s earnings and assets. When a company needs funds or capital, it sells off parts of the company to raise money and grow it.
Investors buy and share these sells, which in turn brings in returns for themselves. Typically, stocks can yield a lot of returns, but it is also high-risk. A company can lose value on the market and lose many of its assets, resulting in a loss for shareholders.
- Bonds: Bonds are a sort of loan. Buying a bond means allowing the bond issuer to borrow your money, loan them to a company or the government and the borrower pays back with interest. While bonds are less risky than stocks, they may also offer lesser returns. The less risky the bond is, the lower the interest rate may be. U.S Government bonds are the least risky type of bonds, while corporate bonds come next.
Bonds are a form of fixed-income investments, and payment usually comes in regular installments, say once or twice a year. It’s necessary to have bond investments because they balance out your investment portfolio. If stocks should take a large dip, bonds will help to reduce the gravity of your losses.
- Mutual Funds: This type of investment allows users to buy many assets in one go. It works in such a way that you can only buy stocks from a particular kind of stocks or bond, e.g., government bonds, and is usually managed by a stockbroker or a Robo-advisor.
The management strategy of the fund determines the risk involved in purchasing them. Mutual funds allow for diversification of stocks, which helps to balance the chances of losing too much money in one go.
6 Smart Ways to Invest Your Money
Now that you know the main types of investments you can make, you can start to explore your options on the smart ways you can make investments using these pointers. The best part is that you can make investments even with little money.
Save Your Money
Investment and saving walk hand in hand. Saving is a form of investment, and investments are also long-term savings. You would likely be a good investor if you have cultivated the fine habit of saving.
Even though there’s no telling when the next emergency would pop up, saving shouldn’t only be for emergency purposes. Savings should be a financial way of life. A good way to invest your money is to keep it aside in a savings account and watch it grow through the accumulation of interest.
If you’ve never saved a day in your life, it’s a good time to begin. Start small; $10 a week is a fair sum to start with and you can increase it as you feel comfortable. It may not seem so much at first, but little “drops” of money make a fairly large sum in the end.
Even better, automated savings have made it easier for you to keep a specific amount of money aside as often as you have programmed it to. The online savings account is different from your regular account and so is not linked to your debit card.
Staying committed to your savings is a good indicator of whether you’re ready to begin your investment journey.
Buy Safe Bonds
For beginner investors, it’s only natural to start with safe investments until you find a firm footing in the investment world and begin to branch out. As discussed above, bonds are low-risk investments that help to cushion the blows of crashing stocks.
They are safe because they are paid in regular installments, unlike stocks that rise and fall at any time, which may lead to massive losses. The worst risk you may face with bonds is that the borrowers default in the loan payment. But many bonds like government bonds (Treasury bonds) and large multinational company bonds reduce this risk drastically.
One downside to this type of investment is that bonds yield lower returns. Over the years, bonds have lost their appeal. It is becoming increasingly common for bonds to reduce in buying power than when it was purchased.
However, bonds can come in handy if you’re not looking to make so much money from your investment, perhaps, just looking for a safe way to keep your money. Buying bonds is a good investment for people nearing retirement.
Buy Low-Investment Stocks
We have agreed that stocks are high-risk investments and scare away many people. But of all the types of investments, stocks yield the most profit and faster too. If you understand the stock market, you can try to beat the market to avoid losses.
However, if you’re new to the game, this may be quite the hassle. This is where you need the services of financial advisors. In the real world, employing a financial advisor’s services to manage your stocks may be quite costly, even more than the investment you may be willing to make.
Because of this, stock market enthusiasts have developed a safer, less expensive, and more convenient way of buying low-investment stocks through Robo investments. Robo investing is simply employing a Robo advisor to manage your stocks.
With Robo advisors, you do not need a physical, financial advisor because they do all the work. Even down to automatically making investments for you at set dates. They monitor the stock market on your behalf and make investments as low as $30. They also charge significantly less account maintenance fees, some as little as $1 per month.
Invest in Mutual Funds
Mutual funds are a safer type of investment compared to stocks, and yield more returns than bonds. So, we can say it is an almost-balanced type of investment for newbies to the investment world.
Mutual funds allow you to invest in a variety of stocks and bonds in one single transaction; even if the stocks take a downward turn, your bonds will thrive. They offer you a way of diversifying your investments so that you don’t encounter major losses by any chance.
Two important things to note about mutual funds is that they are usually professionally managed, and you need a minimum amount to be able to make an investment. The manager decides how the stocks will be managed and ensures your investment yields the most returns upon payout.
A target-date fund is one type of mutual fund that makes automatic investments with your retirement in mind. This is a good type of long-term investment since the stocks in the mutual fund will bring in more returns in the long run.
Test the Waters of Real Estate
Before now, real estatement investment used to be reserved for the wealthy because you need a lot of money to make an investment. Now, the market has made room for everyone to be able to buy real estate stocks with as low as $1000.
If you happen on a lot of money and would like to invest it wisely, then real estate is another way to go. Joining a crowdfunded real estate allows you to become a property owner for as little as $1000. You also don’t need accreditation as an investor to be able to join in the investment party.
Invest in Gold
Bold and daring, but definitely worth it. Some people believe that investment in gold may not yield as much as stocks in the long run, but statistics have proved that it is doing quite well for itself. Over the past 30 years, the price of gold has risen by 280%. That’s not a bad turn out.
However, you may also like to be wary of gold investments, seeing as they’re merely tangible items and its price is subject to rise based on peoples’ demand.
Waiting and hoping that the stock market will tilt in your favor is not characteristic of avid investors. They strike while the iron is hot and make calculated, informed decisions to meander their way out of losses. When in doubt, employing the services of a financial advisor or Robo Advisor can snatch you out of great potential losses.