There are lots of ways to invest money and grow your savings. But with so many options out there, it’s not always easy to know which ones are right for you. If you have a chunk of cash that you’re looking to put somewhere for the long-term, it may be time to think about investing. There are plenty of potential investment opportunities out there that can help you grow your money over time.
However, as with any type of financial decision, there are risks involved in investing money that you won’t be able to access immediately should you need it. Luckily, by doing your research and carefully considering your options, you can reduce the risk associated with investing while still growing your wealth in the process. Here is a list of 10 types of investments and how they work
To understand which types of investments are out there, it’s first important to understand the basics of how investing works. Investing is the process of putting money into a financial asset in the hopes of growing your savings over time. There are lots of different types of investments out there, and each one comes with unique risk and reward factors.
The two main types of investments are “assets” and “liabilities.” Assets are things that generate income for you or have the potential to increase in value over time. Liabilities are things that cost you money over time.
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A “stock” is a small piece of a company. When you buy a stock in a company, you’re taking a small ownership stake in that company. When you own a stock, you’re hoping the company grows and profits increase over time, which in turn should increase the value of your investment.
Stocks are considered a “risky” investment because your investment could lose money if the company does not perform well. Stocks can also be “traded” on a stock exchange such as the New York Stock Exchange (NYSE). When you trade a stock, you’re buying and selling it over and over again until you can find a buyer willing to pay a price that’s higher than the price you bought the stock for.
If the price of the stock goes up, you make a profit. But if the price of the stock goes down, you could lose money.
Mutual fund companies pool money from many investors and put that money towards various investments like stocks, bonds, and other assets. Mutual funds are different from stocks because they don’t give you direct ownership in a company. Mutual funds are a “safe” investment because if one company in the fund does poorly, it doesn’t necessarily affect the rest of the fund. Mutual funds frequently change the mix of investments they put money towards.
This is called “rebalancing,” and it’s done to try to keep the fund as diversified as possible. Mutual funds are managed by a fund manager who decides which investments to put your money toward. Because they’re professionally managed, mutual funds are generally considered a “low-risk” investment.
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ETFs are a type of mutual fund that is traded on an exchange like stocks. This means that you can buy and sell an ETF just like you would any other stock. ETFs generally follow the performance of an index, such as the S&P 500, or a certain type of asset, such as gold.
ETFs are a “low-risk” investment because they’re managed by a fund manager and designed to be diversified across various assets. ETFs also have low management fees that are generally lower than mutual funds. However, ETFs don’t make periodic dividend payments like many mutual funds do, so you have to factor that into your investment strategy.
Bonds are a “safe” investment that generally pays a set amount of interest every year. The company or government entity that issues the bond is promising to pay you back the amount of the bond plus interest at a future date. When you buy a bond, you’re lending money to a company or government entity in exchange for that guaranteed interest payment.
Unlike stocks, which may increase in value if a company does well, bonds generally only increase in value if interest rates go up. In that case, the company or government entity that issued the bond will likely offer you more interest because they can afford to pay more. While bonds are generally considered a “low-risk” investment, there are some types of bonds that are riskier than others.
Hedge funds are a “high-risk” investment that are generally only available to very wealthy individuals. Hedge funds generally invest in various types of assets, such as stocks and commodities, but also come with high fees and often require you to lock up your money for a certain period of time, which means you can’t withdraw your money for a certain amount of time.
Additionally, hedge funds are generally only open to investors who meet certain net worth or income requirements. For example, you may have to have a net worth of at least $1 million to invest in a hedge fund.
Real Estate Investment Trusts (REITs)
REITs are a “low-risk” investment that invests in commercial real estate. REITs are generally managed by a group of people who determine which types of real estate to invest in. REITs are a “passive” investment, which means they generally don’t require a lot of attention while they’re invested in them.
REITs are a good investment for someone who doesn’t have a lot of money to put towards investment because they generally have lower minimum investment requirements than other types of investments. However, real estate is generally considered a “cyclical” investment, meaning it can have lots of ups and downs.
Currency Trading/Forex Trading
Currency trading or “forex” trading is a “high-risk” investment where you buy and sell different types of currencies. In order to trade currencies, you need to open an account with a currency trading platform, such as a forex trading platform.
Currency trading can be a good investment if you’re interested in macroeconomic trends and want to diversify your investment portfolio. However, it’s important to note that it can be very risky.
Robo-advisors are a type of “low-cost” investment that are generally geared towards young people and those who don’t have a lot of money to invest.
You can set up an account with a robo-advisor, such as Wealthfront or Betterment, and they will choose a mix of investments for you based on your risk and time horizon. Robo-advisors are generally a “passive” form of investing that requires you to set it and forget it.
There are lots of ways to invest money and grow your savings. But with so many options out there, it’s not always easy to know which ones are right for you. If you have a chunk of cash that you’re looking to put somewhere for the long-term, it may be time to think about investing.
There are plenty of potential investment opportunities out there that can help you grow your money over time. However, as with any type of financial decision, there are risks involved in investing that you won’t be able to access immediately if you need the money. Luckily, by doing your research and carefully considering your options, you can reduce the risk associated with investing while still growing your wealth in the process.