Investments can be very overwhelming due to several types and opportunities. One has to go through all of them to decide the best type of investment for himself. You must acquire proper knowledge before investing your money because if chosen incorrectly, investments can quickly cause you to lose money.
This blog describes the top ten types of investment that are most popular these days:
Stocks are a type of long-term investment. In this, you can buy shares of publicly traded companies and sell them at a proper time to make profits. The prices of stocks keep fluctuating constantly depending upon the performance of the company and the supply and demand of their products.
As we have mentioned that the stock prices keep changing every minute. If a company registers a boost in sales or earnings, investors are lured in, and as a result, stock prices show a hike in their prices. If you had invested in the shares of that company, it would be a good time for you to sell them and earn some profit.
However, there is always risk in this investment option because if the company bears some losses or its sales decline, you will lose your money as well.
Bonds are also a kind of long-term investment. However, unlike the stocks, they are more conservatory and have low risk involved, and they produce a slow rate of return.
Bonds are basically financial loan agreements between an investor and a company. As a result, investors lend their money to the companies and are supposed to receive interest on their principal amount. The companies are also bound to return the principal amount at a specific date in the future.
Although bonds are a low-risk investment, there is a chance that the company may suffer financially and not be able to return the investment in time.
Mutual funds have been a highly liked way of investment by the public for almost a century since they were started in 1924. They offer low-risk investment options for investors.
In Mutual funds, multiple investors invest their money in more than one company or project under the guidance of a professional funds manager. The fund manager carefully chooses investment opportunities for the investors and tries to outperform the index.
Investors will earn profits when the value of their bundled securities will go up in the market. However, mutual funds can only be bought or sold at the closing of a trading day.
Exchange-traded funds or ETFs are basically an evolved kind of mutual fund. They offer low risk and low annual expenses. Exchange-traded funds can be bought anytime during the trading day when the market is open. They track a specific index or a sector due to their specialised portfolios.
Just like mutual funds, ETFs also make money from the return of all their investments. You can sell an ETF when its value increases and earn profit from it.
Commodities are basically products that you can invest in. This is a high-risk investment but can produce immense profits as well. It is because the price of commodities can slide in any of both directions as the result of any political or geographic event.
Following are the main four types of commodities:
Annuities are the contracts of insurance that can generate regular income for investors. Annuities are a very viable retirement plan because they offer a method of receiving periodic payments for the rest of your life. There are two types of annuities:
Fixed annuities convert principal premiums into regular payments with a fixed rate of interest.
Variable annuities grow during the accumulation period and then are converted into equal income instalments during the distribution period.
Annuities are a very low-risk investment method and can practically guarantee additional income after retirement. However, they provide low profits and are only suitable for long-term savings for retirement.
Certificates of deposits or CDs are a very low-risk and highly straightforward method of investment. In this, you simply hand over your principal amount to the bank for a specific amount of time and earn interest on your amount. After the pre-determined amount of time, you not only get your principal amount back but also the interest on your amount in the shape of the profit.
They are a method of long-term investment and contain almost no risk because your deposits are insured. However, make sure that you are not going to need that money for a long time because there are heavy penalties on early deposit withdrawals.
Saving accounts are the most conservative investment opportunity and produce a very low-profit margin. However, they offer a risk-free opportunity because the principal amount is insured by the bank. They are a perfect way for short-term saving but are not a good option if you are looking for a long-term investment because of low returns.
Options are the instruments that allow you to buy and sell stocks at a specific time in the future. Options are a very complex way of buying and selling stocks and require a proper sense and knowledge of the market as well as an awareness of market trends.
The option is a short-term investment opportunity which can produce both huge profits as well as 100% loss of investment.
Cryptocurrency is the latest addition to the list and a highly speculative one too. Cryptocurrency is a digital currency without any physical evidence of existence. It uses an encrypted blockchain for its transaction. Cryptocurrency has become a highly popular way of investment, especially in the young generation, due to its quick return and low investment options.
However, investment in cryptocurrency requires proper knowledge and awareness of market trends to avoid losses.