When people hear the word investing and investments, They become cautious and curious, Most are intimidated by the idea overall and this can be because of memories of bad experiences in the past like scams or just the fear of loosing their money. And this reservation about investing is justified.
Investing is basically about purchasing assets and resources in the hopes that they will increase or grow in value with time to generate positive gains or profit(ROI). When it comes to investing, There are many options available online daily, both the real deals, and the ones that seem too good to be true., And, it can be difficult to figure-out the right type to go for. There are a wide variety of investment vehicles in the financial market, We'll be covering and explaining a few of them Briefly. They each posses different levels of risk and reward potentials, But they vary.
If you're considering learning about these asset classes or including them in your long-term financial plans, You should consult a financial advisor first of all to help you understand and figure-out how to invest the right way in whatever you decide to invest in. At SAMPEDIA, we can assist and guide you on choosing the right investment plans/assets for your portfolio, both for your long-term and short-term plans.
Here are the best 6 types and how they work.
Stocks are also called Shares or Equities. They represent a small piece of ownership in a corporation, In-other words, When you buy the stock of a publicly traded company, You're buying a share or a small piece of that companies earnings and assets. examples of publicly traded companies to buy stocks from include: Apple, FB, Twitter, Tesla, GM and so much more. These companies sell small pieces or shares of their business simply to raise money.
Stocks most times and in the long run will earn you high returns than most other investment options when or if the price of the stock you bought goes up But the risk of course is, The price of the stock may go down, These can happen if the company fails, Has lots of debt or generally going through a bad period, then down stock prices will result in loosing money.
How Shareholders Make Money: Stock returns can come in form of Dividends or Capital gains. Dividends are shares of a companies profit or earnings distributed to shareholders periodically.
Capital gains occurs when you sell your stock at a higher price than the price at which you purchased it.
When you buy a bond, You're loaning or lending money to a company or government(city, state, nation). You're essentially allowing the bond issuer to borrow your money and pay you back with interest. Bonds may offer low return, But they are less risky when compared to stocks.
Companies issue corporate bonds, Local governments issue municipal bonds, The U.S treasury issues Treasury bonds/Bills that investors can buy.
How Bondholders Make Money: Keep in mind that bonds are issued for a set period of time during which interest payments will be made to the bondholder. This is after you've held the bond for the amount of time required in the contract. Then you'll get your principal back when the bond reaches it's maturity date.
The risk involved in investing in bonds is the company may fold or the government may default on the bond contract.
ETFs are a collection of investments that track a market index. They allow investors to purchase a small portion of a diverse bundle of multiple assets. They are bought and sold on the stock market and are similar to "mutual funds" which is another asset class we will review another time.
ETFs are bought and sold on a stock exchange, This way they mirror the trading behavior of a stock. Just incase you're confused about what ETFs are, Let's take an analogy.
Imagine you've decided to invest in buying a Goat !! Your financial adviser told you owning a goat is the next big thing.....
So..You go to the goat market and bought 1 goat (1 stock) for $1000. (It's an example guys). Now, If you were given the option to buy 10 goats(10 stocks) for the same $1000, which would make more sense to buy ? Exactly.
So , ETFs provide the option of buying 10 stocks for the same price, Instead of just buying 1 stock. This is a great way to diversify your investments. The S&P 500 is a good example of an ETF as it tracks the top 500 performing companies in the U.S
How ETFs Investors Make Money: This asset class is mostly recommended to new investors because they are more diversified and less risky than individual stocks, And you can make money by selling your ETF as it increases in value.
There are several types of retirement plans, They could be workplace plans like 401(k) and 403(b) plans, Annuities or Individual retirement plans (IRA) or ROTH variety.
The 401(k) plan for example allows employees to contribute a portion of their wages to individual accounts. Employers can contribute to these account too. You can read more or do more research on retirement plans options, there are several varieties. or consult an expect to find out which specific plan will serve your best interest.
How R.P Investors Make Money: Retirement plans will give you the option to invest your money before payment of any tax. You also can make withdrawals from your retirement account without paying tax also. It's a two (2) way advantaged win.
These are physical products that you can invest in because of the massive value they offer. Commodities are used a lot usually as inputs in the production of other goods or services. They can be grouped into the following categories:
Metals: like Gold, Silver, Copper, Platinum and more....
Energy: Natural Gas, Crude Oil, and other Petroleum products.
Agricultural and Livestock products like Soybeans, Corn etcetera.
The prices of commodities tend to move in opposition to that of the stock market(stocks) prices, Therefore it's become an important asset class to traders and investors seeking to diversify beyond traditional securities.
How Commodities Investors Make Money: Commodities can be bought and sold in the the forex market or it's derivatives like options and futures market.
They've been around for a little just over a decade, Slightly new investment options, But have made a really significant impact in the global markets. There are different types of cryptos but Bitcoin is the most popular both in terms of it's market cap, Price, Value and Global appeal. Recently several countries have begun adopting Bitcoin as a legal medium of exchange.
There's also Ethereum, Cardano and more, That offer different solutions in the crypto space. You can trade or invest in cryptocurrencies on exchanges, There are several available.
The Crypto market experiences insane volatility and market fluctuations, This makes investing in them quite risky, Totally not for you, If you're Chicken hearted. But there are huge rewards and returns too on your investment as long as you manage your risks properly.
Investment education is important and avoiding investing in things you don't know about or understand is even much more important. There are many different types of investments to choose from. Some will be great for beginners while others require lots of experience and education.
Each of the Investing options listed above offer different levels of risk and rewards that should be understood in-depth. You should again, Find an expert to guide you on this to prevent making financial mistakes that may be hard to recover from. So don't do this all by yourself, It helps to be guided. You will be needing a brokerage account to be able to invest in some of the listed asset classes. It's different from a bank account, It'll basically allow you to buy and sell Investments.
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