For many individuals, investing is often the preferred route to growing wealth and having their money work for them. There are numerous types of investment available, each with its own levels of return and risk. As a rule of thumb, the higher the potential profits, the higher the potential risk that an investor has to incur, including losing all of their investment. It’s therefore useful to have a mix of various investments and doing so starts by knowing which investment types are out there.
Having a diverse portfolio can help protect your investment from market upswings and downturns. Ali Seytanpir, an active investor and researcher into market trends, is among numerous investors who have active accounts in different investment categories. To boost his knowledge, Mr. Seytanpir attends regular seminars and workshops on trading training.
Investments can be broken down into the following major investment groups:
Ownership investments are the most common types of investment that people put their money into. They are profitable – but also the most volatile.
Some examples of notable ownership investments are:
- Purchasing a share of stock provides the investor with a stake in a firm (partial ownership) and its profits.
- Real Estate. A dwelling (home, apartment) that an investor purchases to resell or rent out is an ownership investment. The home you dwell in, however, doesn’t fall under this category since it fulfils a basic need and might not have been bought with the expectation of profit.
- Precious Objects. Items that come under this category (precious stones, works of art, collectibles) can be considered ownership investments, provided they are purchased with the intention of gaining a profit through reselling.
- Investing finances and time towards a new venture that is geared towards bringing in a profit can be considered an ownership investment.
Lending investments tend to carry less risk than ownership investments, and conversely, their returns are less. For example, a bond issued by a firm is expected to pay a particular amount over a certain period. Over the same duration, a company’s stock can triple in value, netting stockholders a good return – or it can drop in value significantly, in which case the stockholders go home with little or nothing.
Examples of lending investments include:
- As explained, bonds are debt investments where investors expect to be paid back over a certain period by the entity that issues the bonds.
- Certificate of Deposit. A certificate of deposit (or CD) is a type of savings account where the bank, rather than allowing investors to withdraw money at any time, promises to offer a higher interest rate for the amount if the investor commits to leave the money for a set period.
- Savings Accounts. A savings account can be considered a lending investment, mainly because it involves lending money to a bank that gives it out in the form of loans. Returns with this type of investment are generally quite low.
Cash Equivalent Investments
Cash equivalent investments are those that are easy to convert back into cash. Money market funds, for example, offer small rates of return, but also tend to be more liquid than other forms of investments. A savvy investor might have a small percentage of their portfolio made up of cash.
Now, people sometimes think of education as an investment, mainly because a good education can help an individual earn a better (or higher) income. But education technically isn’t an investment, since classing it as such not only stretches the meaning of investment, but also opens a “Pandora’s box” of classifying every purchase that potentially makes individuals productive as an investment.