There are dozens of different types of investments, from stocks and bonds to real estate and mutual funds. And every kind of investment has its own set of characteristics, risks, and rewards. So, how do you know which investment is suitable for you?
To help you get started, we've compiled a list of seven types of investments and how they work. Read on to learn more.
1. Stocks
Stocks are shares of ownership in a company. When you buy stock in a company, you become a part-owner and are entitled to a share of its profits (if any). Of course, stock prices can go up or down, so there's always some risk involved. But over the long term, stocks have historically outperformed other investments, such as bonds or savings accounts.
2. Bonds
Bonds are essentially IOUs. When you buy a bond, you're lending money to a government entity or corporation. In exchange, the borrower agrees to pay you interest on your loan and repay the total amount when it comes due (usually 10 or 20 years down the road). Bonds tend to be less risky than stocks but offer lower returns.
3. Real Estate
Real estate investing can take many forms, from buying a rental property to investing in a real estate development project. Returns on real estate investments can be very high, but more risk is involved than other investments. For instance, changes in the housing market can have a big impact on real estate prices.
4. Mutual Funds
Mutual funds are baskets of different stocks and bonds managed by professional investors. When you invest in a mutual fund, you're pooling your money with other investors and entrusting the fund manager to choose investments that will grow in value over time. Mutual funds offer the potential for higher returns than other types of investments, but more risk is involved.
5. Exchange-Traded Funds (ETFs)
ETFs are similar to mutual funds because they're baskets of different stocks and bonds managed by professional investors. Make sure to pick the right company and do your research well. Check out how different companies like Edward Jones and Vanguard compare. However, ETFs trade on stock exchanges like individual stocks do, which means they can be bought and sold throughout the day at varying prices. ETFs offer the potential for higher returns than other types of investments, but more risk is involved.
6. Technology and Apps
Technology and apps are becoming more and more popular ways to invest. There are a variety of different apps and platforms that allow you to invest in different companies and assets. Returns on these investments can be high, but a higher risk is involved. Before investing in any technology or app, be sure to do your research and understand the risks involved.
7. Retirement Plans
Save for retirement and get tax benefits by contributing to a 401(k), 403(b), or Individual Retirement Account (IRA). Contributions to these types of accounts are typically tax-deductible, and the money in the account grows tax-deferred. That means you will only have to pay taxes on your investment gains once you retire and start withdrawing money from the account.
Various retirement plans are available, so it's essential to research and choose the one that's right for you. Be sure to consider fees, investment options, and employer-matching contributions (if any).
Conclusion
No matter what type of investment you're interested in, you must do your homework before diving in. Familiarize yourself with the risks and rewards of each type of investment before you put any money down. And if you're ever unsure about an investment, feel free to ask a financial advisor for help.
Choosing the right investment is a personal decision. There's no "one size fits all" answer. The best way to figure out what's right for you is to educate yourself about the different types of investments and to speak with a financial advisor. With some research and guidance, you can find an investment to help you reach your financial goals.
WRITTEN BY
Jacob Maslow