8 Types of Financial Investments to Invest Your Money

Understanding different types of financial investment will help you to build an investment portfolio. It also helps to invest your money in a way to minimizes risk. There are different investment options available to take into consideration while building your portfolio. So, this article explains different types of financial investments to invest your money in.

What is a financial investment?

This is an asset on which you can invest your money to generate income. It involves the acquisition of any item to make more money. However, investing your money in financial investment involves taking a certain level of risk because you can lose your capital if things are not favorable.

Types of financial investment

Stocks

This is the financial investment that is also known as a share. This is one of the best investment options available to investors. It involves acquiring an ownership stake in a company. By buying shares of a company, you are entitled to receive a dividend from the company. If the price of the shares increases, you can sell your shares at a profit. You also have right over the assets of the company in the case of liquidation. The risk involves in this investment is that you can lose your capital if things go wrong. You can buy shares online through an online brokerage firm or physical contact with a broker.

Bonds

This is another financial investment to consider if you want to invest your money. A bond is a debt instrument you can buy to lend money to a company or government agency to receive fixed interest. A bond is regarded as a safe investment. By investing in bonds, you will entitle to interest payment as well as the principal amount when the bonds mature. In the United States, you can invest your money in US treasury bills, notes, and bills as debt instruments and safe investment options. However, a bond has a lower rate of return compared to stock, but it is less risky than stock.

Mutual Funds

This financial investment involves pooling many investors’ money to buy different types of investment based on the fund’s goal. Therefore, investors collectively use their money to buy different securities such as stocks, bonds, currencies, commodities, and others. The return from such investments is distributed based on the existing agreement between the investors. You can operate mutual funds actively as well as passively. Under an actively operated mutual fund, the fund manager usually selects the securities to invest investors’ money. The manager always picks securities that will outperform the market index. However, under a passively operated fund, the manager usually tracks a major stock market index like S&P 500. This type of investment is also known as the market index. This investment has less risk because the investments are inherently diversified.

Real estate

This involves investing in commercial or residential properties either directly or indirectly. Direct investment in real estate is when you acquire commercial or residential properties by yourself. Indirect investment in real estate is when you acquire shares in real estate investment trusts (REITs). REITs work similarly to mutual funds.

Exchange-traded funds

Exchange-traded funds (ETFs) as a form of investment involves buying and selling shares on the stock markets. It is similar to the mutual fund in which investments are purchased through a fund company, but trading under ETFs occurs throughout the day on the stock markets. New investors should invest in ETF because it is more diversified than individual stocks. It is also advisable for investors to choose an ETF that tracks a broad index.

Options

Another financial investment to consider is an option. An option is a type of financial investment that involves a contract to buy or sell a stock at a predetermined price at a given date. It is just an option, not an obligation to buy or sell the stock. However, there are two types of options including call options for buying and put options for selling. Therefore, when you buy an option it simply means you are buying the contract, but not the stock itself. Then, you can buy or sell the stock at a predetermined price within the agreed time (i.e. sell the options to another party) or you allow the contract to expire. More so, most of the options are for 100 units of stock.

Commodities

A commodity involves investing in physical items such as Gold, Silver, Precious stones, agricultural products, and others. Investment in the commodities yields profits to the investors by selling them when their market value increases. The market value of commodities such as gold depends on the scarcity and fear that can be created by environmental changes or political actions.

Certificates of deposit

This involves depositing a certain amount of money to the bank for an agreed period. At the end of the agreed time, the principal amount and a predetermined interest are paid to the investors. So, it is regarded as a low-risk investment. It is important to ensure that you don’t withdraw the money during the agreed CD’s period. However, the longer the period, the higher the interest rate.

Conclusion

There are so many financial investments on which you can invest your money. However, these investments have a different level of risk and return and require a different level of experience. You can consider any of these investments based on your risk appetite and goals.

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