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A Beginner’s Guide to Different Types of Investment

A lot of people find investing daunting because there are so many investment vehicles ⁠— each behaving differently in the market and having their own conditions for success. However, being able to fully understand an investment’s basic principles can mean either profits for the short-term or financial security in the long run. In this post, we’ll briefly discuss some of the most popular investment vehicles to help you grow your money.

Stocks When you buy stocks, you basically buy a part of a company ⁠— making you a stockholder and giving you the privilege to vote in company matters. However, the main reason why people purchase stocks is to create profit from their investment. For instance, stockholders can sell their stocks once the price appreciates ⁠— allowing them to generate huge profits especially if the price significantly rises. Another way to make money from stocks is by receiving dividends or your share of what the company makes in a specific period of time. In order to secure your investment, you have to do your research on the market and find high-dividend stocks as mentioned in our post ‘Ways of Increasing Passive Income’. Bonds Another investment type that you should consider is bonds. In a nutshell, a bond is a fixed income instrument that signifies a borrowing agreement between an investor and an organization. Data Driven Investor explains on Medium that bonds are offered by governments and companies to fund their expansion plans, operations, and projects. Those who choose to invest in bonds can hold these until their maturity date and collect the scheduled interest payments on them. Bonds also tend to appreciate, so you can make a return on your investment by selling your bonds at the right time. Forex Forex simply is the process where one currency is traded into another. Usually, the forex market is used for tourism and commerce reasons, but people can also trade forex as an investment and make money off of it. Because of this, FXCM points out that some of the key benefits of trading forex include its unmatched liquidity, flexibility, and ability to let investors trade on the margin, which lets you trade more than what you actually invest. You also don’t need much to start. In this $5 trillion global market, just $500 is enough to begin participating. Mutual Funds The thing about buying stocks is that diversification through individual stock purchases can get really expensive. This is why mutual funds were created. Unlike stocks, mutual funds allow you to access different securities like stocks, bonds, and other assets at a reasonable price ⁠— giving you better chances of generating profit. This is made possible by fund managers, as they pool your money with other investors’ cash in order to sustain a professionally managed portfolio. ETFs Similar to mutual funds, ETFs allow a low-cost access to a diversified set of asset classes and industries. However, ETFs can be traded like stocks since you deal with another investor and not with a fund manager. The Wall Street Journal notes that ETFs are a great investment since it doesn’t charge high fees, it’s diversified, and it can be sold at any time during the day. Commodities You can invest in commodities such as oil and natural gas, as well as agricultural products through futures. Simply put, futures allow traders to set the price of a commodity and underlying asset. Traders make money off commodities when the market price is higher than the futures contract. What’s great about investing in commodities is that they’re not too dependent on bond and equity markets ⁠— mitigating loss and allowing investors to easily diversify their portfolio. Overall, newbie investors shouldn’t be too overly afraid of betting their money on an investment vehicle ⁠— as long as they’ve taken the time to understand the market and the different investment types. Investing can help you achieve financial security in the future, so try not to waste your resources and do your due diligence before investing your money.

This article was written by Jenna Gagnon.


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