Different Types of Investments & What They Are explained by Frederic Sealey
Investment or investing is a tool for building future riches, however investing is not limited to the well-off people only. Anyone can start channelizing their capital through the different investing system and there are different types of tools and methods to make it very simple and add to your portfolio. Investing your money require lots of organizing our budgetary prospects over your current cravings. There are different ways with which you can easily approach investing your capital at right direction such as placing you’re saving into securities, stocks, ETFs, securities, and land or starting your own business. Each option comes with its very own pros and cons which will be examined by Frederic Sealey Consulting Associates in the later segment of this article.
While the majority of people have only heard of bonds and stocks there are many different ways of investing your money from CDs, mutual funds, and real estate. The list is almost endless. In this article, we will share the reference of various investment types and how they exactly work.
Before we begin, here are some helpful terms used in the finance world which are also part of the stuff you invest into such as:
- Assets: Investor-owned resource that comes with certain value
- Portfolio: Refers to your investments in a complete group
- Holdings: Some of the specific assets your portfolio
To gain clarity on the different kinds of investments they can be categorized into three basic segments: lending investments, cash equivalents, and owned investments.
Ownership investments are those investments where you own an asset that is expected to increase its value over the period of time. The own your investments include:
- Real Estate: As per industry expert Frederic Sealey, any real estate property commercial or residential that you buy and further rent out is a type of ownership investment. Over the period of time, the value of your property may increase or decrease depending on the geographical, market base of the real estate industry in your area.
- Stocks: Stocks are also known as the share or equity. The stocks give you the certain percentage of stake in an organization you choose to invest into along with its profits. In simple terms, you get the partial ownership of a private-public company. Your investment portfolio is largely made of a high number of stocks.
- Precious Objects: The rare collectible items, precious metals etc. are considered to be another type of ownership investments especially in case investor has an intention to resell all of them for profit in future
- Business: Investing your time and money towards starting your own little business of service or product that is meant to fetch you profit in future is also the type of your own investment.
Lending investments are the type of investments where you buy something on debt which if later on expected to be paid back. It’s similar to loan or lending from the bank and in this case you are the bank. This type of investment is a low reward and low-risk investments which means they are considered to be a safer investment but the returns are usually very low.
- CDs: Certificate of Deposit is a promissory note that is issued by the bank in exchange for your money. Banks offer these certificates. CDs are similar to saving account but little different at the same time as its mandate to leave money in your account for the set time period and in return bank will offer you a good rate of interest based on the time period you choose to invest your money with them.
- Bonds: Bond is a protective term for debt investments. When you purchase a bond, you decide to loan your money to a corporation or the government sector and they return you your money after a certain time period with a pre-fixed rate of interest. Your investment portfolio will consist?
- TIPS: TIPS refer to treasury inflation-protected securities. These are basically the bonds which are backed up by United States Treasury specially designed to protect the financial system against the inflation. On the maturity, investors receive the principal amount and the interest both indexed for the inflation. We will discuss TIPS in more details in upcoming articles where you can understand everything about TIPS and it’s working.
In order to balance out your finances in your investment portfolios, you should have few lending investments.
Investments Equivalent to Cash
A small percentage of an investor’s investment portfolio will be made of some amount of cash. The cash equivalent is as close as cash itself in the form of savings accounts, market fund with low return rates. Something that can be accessed anytime for immediate or emergencies.
Now that we have covered all three categories of investment types, there are broad descriptors that are quite helpful in explaining how these investments work. Investing companies tend to break things differently as they go by stocks, asset class, cash, bonds and other alternatives. Since you have got an idea about the bonds, cash, and stocks which are considered to the traditional ways of investing, everything else remaining is part of alternative investments. It is to be noted that a quite lesser percentage of your portfolio should include them.
- Venture Capital: Venture capital is the money that you give to a small business or startup with the hope and expectation of it growing more and possible return. Many times investors become business partners in the company owning the part of its equity, share and get to have a say in all the business decisions.
- REITs: REITs refer to Real Estate Investment Trusts which is another great way of investing in the real estate industry. Instead of purchasing a property, you tend to work with an organization that gives you profit for the investment they do. Frederic Sealey, a real estate industry expert states that you also have the opportunity to purchase REIT and have a certain amount of share in the property itself with which you are basically buying an asset with a potential income for a long time through the property appreciation and rent. You also have the option to invest in the real estate mortgages.
- Commodities: Commodity investments can affect the economy of a country. Beef, coffee beans, and oil are types of different commodities. There are future contracts which are used to purchase these types of goods and these contracts are filled through NFAB (National Futures Association Brokers), Frederic
- Funds: Funds can be part of any of three investment categories. They are not a specific type of investments but the term funds are used for groups of different investments. It’s like a capital pool which is managed professionally to achieve the excellent returns for the investors. Generally, a company picks a group of similar types of assets such as the group of bonds, stocks etc. and curate an investment plan for which you will pay the fee or the expense ratio and aim to provide you convenient investments with better returns which is more profitable than picking something on your own.
It is to be noted that the list of above-mentioned types of investments should be taken as the reference than a guide to get started. Depending on what you want to do or where you want to invest, many of these options may or may not be suitable for you. The beginners will likely to stick to mutual funds and CDs for a better return in short-term and as you step ahead into diversifying your investment portfolio, you may want to consider TIPs or REITs.
Though there are lost of financial terms associated with the investing but knowing where to invest exactly can be complicated and confusing at the beginning. But once you understand the basics you can take interest in each category further and see how they work to help you decide better. We will bring you more on the investment categories further. Stay tuned for more updated and tips from the investment world.