There are many different types of investments available today. These include stocks, bonds, overseas investing, precious metals such as gold and silver, real estate, annuities, savings and the money market.
Let’s take a look at each investment type starting with savings and money market accounts. These are found at your local bank or any bank that you prefer. These accounts are insured and pay an interest rate, also known as a yield, for your initial investment. As this investment is less risky than any other investment type, it pays a lower yield. These accounts are also insured by the FDIC, so if the bank defaults you can at least have peace of mind that you have insurance.
Bonds are available at any broker. There are various types of bonds available. Municipal bonds are those issued by states and cities. There are also corporate bonds. When you buy a bond, in effect, you act as a bank by lending the recipient your money in order to receive interest payment on your investment on the maturity date. The advantages of bonds are that you are provided information ahead of time such as maturity date, yield, and minimum investment. You can then calculate with your broker how much you will receive on the maturity date.
- Stocks and mutual funds.
The most common investment is stocks and mutual funds. Every company that is traded publicly has a Ticker which is listed on a major index. You’ll usually find the Ticker bar on the bottom of any news channel displaying the Tickers for each individual company, so you can see the gains and losses per month or year. When you buy or sell an individual stock, you pay commission to the broker. If you trade frequently this could amount to quite a lot of money. Stock trading is conducted online today with platforms such as CMC Markets.
Mutual funds are basically like a basket full of different stocks for different companies. There are many different types of specialised mutual funds for different types of stocks, some international, local, tech, oil or energy. By investing in a mutual fund, you have less risk if a company defaults or goes bankrupt because you have effectively invested in the stocks of many companies at the same time.
- Overseas investing
Overseas investing can be conducted in similar ways. You can buy stocks and mutual funds in companies overseas, but remember you must be aware of the economic status and trading laws of the country you choose to invest in.
- Real estate
Investing in real estate is, of course, when you buy property in order to rent it out for a monthly income with a possible view to sell it for a profit. Return on investment for real estate is typically in the 5-10% range. If you would prefer to avoid all the hassle of buying and renting individual properties yourself, you can also buy a mutual fund for real estate.
- Precious metals
Precious metals provide a smaller return, but their main benefit is their ability to offer a hedge against inflation. You may choose to buy actual precious metals, such as physical gold and silver, or you may buy a stock in gold and silver, amongst other metals.
Annuities provide a somewhat higher yield which is backed by insurance companies with no tax on compounds until you decide to withdraw the full amount. As annuities can be more volatile, it is recommended to wait until you are fully comfortable with your retirement account before trying riskier investment options.
The type of investment you choose will depend entirely on your unique financial position. If you live in a country where inflation is running rampant, precious metals may be your first port of call. If you welcome more risk and a bit of gamble, stocks may be your investment of choice. Or you may be in a position to diversify through every type of investment to give you a comprehensive portfolio.
Remember all investments involve risk to some degree. You must understand the risk completely before you put your capital in any type of investment. This article should not be used as investing guidance or as financial advice.