Investment is an important part of financial wellness. It’s critical to create good investment plans to make your money grow over time.
However, it can be overwhelming to start your investment journey if you don’t know where to invest. Well, there’s a solution to that as well.
Yes, we’re talking about the investment basics you must know to build a strong portfolio. Later on, you’ll start to learn to use up-to-date charts and make complex investment decisions.
When you know the right investment vehicles, you will understand your willingness to take risks as an investor and can create risk-averse fund allocation tactics that help you grow your money.
Through this blog post, you’ll learn about different investment vehicles to easily achieve your money goals.
7 Types of Investments Every Beginner Must Know About
Here are the seven main types of investments every investor must know about –
1. Equity Investment
One of the most common and effective ways of making money through investments is through equities. Equity investments, also known as shares, or stocks allow investors to make money off a company’s profit.
When you invest in a stock, you own a percentage of the company’s stake and are eligible to earn benefits should the company earn profit. However, the loss on the company’s part can also result in your loss. So, there’s a risk associated with equity investments. Here are some key factors to keep in mind –
- Investors earn a profit if the stock or equity grows in value. It can also be the opposite.
- The earning potential depends on the company’s capability to pay dividends.
- The company size, financial stability, and value of the stocks also add to the investor’s profit.
- Equity investment comes with a steep learning curve and the use of up-to-date charts to track a company’s market performance.
2. Bonds
Investment in bonds means investing in companies linked with the government. Government or government-linked companies often raise funds for public projects and issue bonds to investors in return. This investment holds your money for a set period and offers interest along with the principal once the investment reaches its maturity date.
- Bonds are government-issued documents against investments made by government companies.
- There’s a specified interest rate and maturity period for every bond.
- These are less risky vehicles compared to stocks.
3. Mutual Funds
Mutual Funds are a way to invest in stocks without having to worry about the volatility of the stock market. Investors don’t have to choose individual securities or stocks directly.
Instead, there’s a fund manager who periodically receives your money and distributes it across different stocks, thereby reducing your risk potential.
- Mutual fund investments provide more liquidity than bonds or FDs.
- There’s a tax benefit on these types of investments.
- Thanks to an existing professional fund manager, investors don’t need to worry about too much knowledge about stock markets.
- It’s also a way to diversify your portfolio, helping secure benefits and reduce risks.
4. ETF
ETFs or exchange-traded funds are similar to mutual funds. However, the difference is in the asset classes these investments hold. Instead of holding different company stocks, there are different stocks, commodities, or bonds, allowing investors to earn dividends. Here’s the nature of this type of investments:
- ETFs are low-cost and low-risk investment vehicles.
- ETFs are generally diversified stock portfolios.
- Through ETFs, you can hold stocks, bonds, and every other type of investment vehicle at the same time.
- It’s a tax-efficient investment vehicle.
5. Segregated Funds
Segregated funds combine the security of an insurance plan with the compounding effects of mutual funds. It’s one of the best ways to make money through mutual funds easily. It offers a guaranteed return to investors who are looking for a combination of safety and financial growth.
- The principal amount of investment is guaranteed.
- These investment vehicles come from life insurance companies.
- An additional fee is added to these investments for protection.
6. GIC Investments
GIC investments stand for Guaranteed Investment Certificates. Consider it a fixed-income and low-risk investment vehicle to easily secure your future. Investors have to deposit funds with a financial institution for a specific timeframe. It’s almost similar to what a Certificate of Interest means in the USA.
7. Alternative Investments
Alternative investments are investment options outside of traditional assets like stocks, cash, and bonds. These investments include real estate, private equities, cash, collectibles, art, hedge funds, and cryptocurrencies.
Conclusion
As an investor, it’s critical to know about different types of investment vehicles and the nature of each to expect the right type of risk and profit from them. This article should help you learn about different types of investment vehicles and help you make the right investment choices.
