Investment is the use of capital in long-term projects that are expected to result in monetary profit. “Investment” derives from the Latin word investio “to clothe”. The economic sense derives from the Italian word “investire”, from the same Latin root, which has the sense of “giving one’s money a new form”. Investing is important for meeting your financial goals. There are many different kinds of investments. The following lines present twelve different types of investments.
- Stocks. Investment in company stock gives you part-ownership of a company. Your money’s fortunes come to be tied to the fortunes of the company whose stock you own.
- Insurance. Insurance investment allows you to anticipate disaster. Buying insurance can offset the losses you may suffer from unfortunate events.
- Retirement. You can use your money to buy retirement funds. Retirement funds are managed investments in vehicles like stocks and bonds.
- Options. Options allow you to anticipate the movement of stock prices. You can invest in options to profit off of the increase or decrease in the price of a given stock.
- Bonds. Buying bonds is like lending money to governments or corporations. The money lent is awarded interest over time.
- Commodity futures. Investing in commodity futures allows you to anticipate the movement of the prices of basic resources. The fluctuations in the prices of commodities like energy, food, metals, and building materials can be exploited for profit.
- Annuities. Annuities are a type of retirement investment. Payments are made regularly to an insurance company over time, and then returned to the investor once an advanced age is reached.
- Mutual funds and ETFs. Mutual funds and ETFs allow investors to profit from the fluctuations in the prices of multiple investment instruments. ETS are often tied to the stock prices of multiple companies in the same industry.
- Bank products. Bank products include deposit accounts. People invest in bank products to accrue predictable returns.
- Saving for education. Education can increase your salary. Saving money for education can be a good investment.
- Alternative and complex products. Derivatives are an example of alternative and complex financial products, which gained infamy in the wake of the 2008 financial crash. Alternative and complex products are riskier investments.
- Security futures. Investors can make bets on how the prices of stocks will change in the future.
Buying a company’s stock gives you part ownership of that company. Investing in stocks can bring a number of financial benefits. Your investment becomes more valuable in the event that the price of the stock goes up. Your investment becomes less valuable in the event that the price of the stock goes down, however. Profitable companies share their profits with shareholders through dividends, as well.
Insurance refers to investing your money in such a way as to anticipate and offset negative financial events in the future. Investing in insurance involves paying insurance companies regular fees. The regular fees paid to insurance companies are paid in exchange for lump sums paid by the insurance company to the client when some specified negative event occurs. Investing in insurance offsets risk. Many kinds of insurance exist, including life insurance, health insurance, and homeowner’s insurance, for example.
Retirement investing is setting money aside for retirement. Setting money aside for retirement will allow you to have a comfortable income after you retire from your job. Retirement investing involves putting a small percentage of your regular income aside. The percentage of your regular income you put aside can be put into retirement funds run by professional investors. Or you can manage your retirement investments yourself.
Options are an alternative way to invest in stocks. An investor who buys an option puts a specific date of action on the stocks they buy. The investor has the option to buy or sell the stock before the date of the action. An option to buy is called a “call”. An option to sell is called a “put”. Options are commonly used as hedges.
Bonds are investments in governments or corporations that return a fixed rate of interest. Bonds have specific dates of maturity. When the bond matures, the amount invested is returned to the investor with interest. Some bonds also have their value tied to inflation. Bonds are considered a conservative mode of investing.
6. Commodity Futures
“Commodity futures” refers to speculation on the anticipated price of commodities. “Commodities” refers to raw materials used in industrial processes. The prices of commodities change over time. Investors speculate on commodities by buying contracts to buy or sell commodities at a certain date. The buyer of a commodities futures contract pays an initial amount on the specified trade for a commodity at a specific price. The trade settles at the date specified in the contract. The difference between the price paid by the speculator and the actual price of the commodities results in a profit or loss for the speculator.
Annuities are a kind of retirement investment. An individual pays a certain amount to an insurance company. The insurance company then repays that amount over a specified period of time. Annuities may also be tied to stock markets. Indexed annuities and variable annuities are both tied to stock markets. Indexed annuities restrict speculative profits in exchange for the return of the principal invested. Variable annuities allow for unlimited gains as well as losses.
8. Mutual Funds and ETFs
Mutual funds and ETFs are managed investment funds. Investments in mutual funds and ETFs allow for exposure to diverse sets of investment securities. Mutual funds tend to make broader investments than ETFs. ETFs are generally tied to a single sector. Mutual funds and ETFs are generally seen as more conservative investments.
9. Bank Products
Bank products include deposit accounts. Deposit savings accounts pay interest over time. The interest paid by deposit savings accounts varies depending upon their type. Some types of deposit savings accounts require that money be held for a certain period. If money is withdrawn from these accounts prior to the specified date, a penalty is levied. Bank products are generally one of the most conservative investments.
10. Saving for Education
Education is an important element of many people’s careers. It’s important to save for education. Education can be seen as an investment. Higher levels of education can bring in greater amounts of money. Yet education can be expensive. Thus it’s important to save wisely with regard to education.
11. Alternative and Complex Products
“Alternative and complex products” refers to a variety of different investment vehicles. “Alternative products” refers to investments that fall outside of the traditional categories centered around investment securities, for example, real estate. “Complex products” refers to investment products that compound elements of traditional categories into new types of investments. Options, futures, and derivatives are some kinds of complex investment products.
12. Security Futures
Security futures refers to speculation on the future cost of investment securities, like stocks. The speculator buys a contract to buy or sell a specific stock at a specific future debt. The speculator pays a small fee for the contract in advance of the transaction. When the transaction date arrives, the speculator must complete the transaction. The difference between the price at which the speculator bought the contract and the real price at the time specified in the contract results in profits or losses for the speculator.
What is an Investment?
Investment is the use of money to acquire a gain in the future. There are many different types of investments. “Investment” can be used to refer to the strategy of using money to meet financial goals. “Investment” (usually in the plural “investments”) can also refer to the specific vehicles used for the purpose of investment. Investing in retirement or education can be carried out through stock investments or through bank account investments, for example.
How do I choose the Best Type of Investment?
The following lines list how to choose the best type of investment for your situation.
- First, identify your financial goals.
- Second, identify the level of risk you are able to tolerate.
- Third, identify the type of investment that best fits your financial goals and the level of risk you are able to tolerate.
What are the Best Types of Investment for Beginners?
The following lines list the best types of investment for beginners.
- Bank products. Bank products like savings accounts are the best type of investment for beginners. Bank products are low-risk investments.
- Mutual funds. Mutual funds are a good type of investment for beginners. Mutual funds are relatively low-risk investments managed by professionals.
- ETFs. Exchange-traded funds are a good type of investment for beginners. ETFs track the prices of many stocks, usually within a given sector. The price of an ETF is not tied to the fortunes of a specific company.
Which Investment Type is Ideal for Retirees?
The investment type that is ideal for retirees is bank products. Bank products provide a small rate of return. The small rate of return is combined with ease of access to the money. Bank products’ ease of access to money and small rate of return is associated with high levels of investment security. Bank runs have become rare in the USA since the government undertook to insure bank accounts in the wake of the financial crises of the 1920s and 1930s.
Which Investment Types are Safe?
- Bank products. Bank products are insured by the government. Bank accounts are safe places to keep your money.
- Mutual funds. Mutual funds are managed by professionals. Mutual funds are safer than investing on your own.
- Exchange-traded funds. ETFs allow investors to invest in entire sectors. The price of an ETF is tied to the stock price of multiple companies. This makes ETFs relatively safe investments.
Is it Risky to Choose the Right Type of Investment?
Yes, it is risky to choose the right type of investment. Investment always carries some risk. Even putting your money into a government-insured bank account is risky, since any government can be overthrown, in which case its promises would be worthless. Stuffing your money into your mattress runs the risk that it will be burned to ash in a house fire. Managing risk intelligently is an important element of investing.