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When it comes to investments, it might surprise you to learn that there are many different kinds. You can’t simply put up your money and expect it to be “invested”; instead, you’ll find lots of different ways to embed your funds in several different places, meaning that the stock market can sometimes seem like a confusing and difficult place if it’s your first time investing.
This doesn’t have to be the case, however. While there are many different investment types, the truth is that most of them are pretty simple when you take the time to learn and understand them. Don’t be afraid to use sites like InterInvestor to help you decipher stock market info, either; you should be taking advantage of all the help you can get in this area. We’re here to assist you as well, so without further ado, here are 8 different types of investments you’re likely to come across out there in the wide world of investing.
1. Cryptocurrency
One of the newest types of investments out there on the market (relatively speaking, of course) is cryptocurrency. To put it simply, this is a currency that uses the blockchain to verify ownership; you buy crypto, and your transaction is registered on a decentralized ledger that is regularly updated with new transactions. Cryptocurrency doesn’t have a regulating authority or body, unlike traditional fiat currency. Some of the most common types of crypto include Bitcoin, Ethereum, Dogecoin, and Litecoin, and more types are appearing every day.
2. Stocks
If you’ve ever had a conversation about investment, then there’s a good chance you’ve talked about buying stocks. In short, stocks are a way to own a share in any given company. The company must be trading publicly in order for you to buy stocks. Your stocks will increase or decrease in value depending on the fortunes of the company; if it has a massively successful product launch, you’ll see the value of your stocks increase, but if its CEO is caught doing something illegal, the stock value could plummet. Stocks are a conventional type of investment, but there is, of course, still risk involved.
3. Mutual funds
Mutual funds tend to be options for more serious investors (and not options in the investment sense, which we’ll come to later) because they involve pooling your money with other investments to invest in a wide range of companies. There are active and passive mutual funds; active funds are managed by an individual or organization, while passive funds simply track stock markets and invest according to trends. This is a good option if you don’t trust yourself to properly diversify your portfolio and want to move with a group of other savvy investors.
4. Retirement and pension plans
Technically, retirement and pension plans count as investments, since you’re putting money into a fund that will pay out for you after a certain point. In America, you may hear retirement plans referred to as “401(k)s”, which tend to be plans that your employer sponsors. In the UK, most employers will provide some kind of pension plan that you can join, and will take a portion of your wages each month to guarantee you some kind of income when you retire. It’s worth asking about your pension fund when you get a new job because employers’ policies can differ.
5. Options
In essence, when you purchase options, you’re still buying stocks, but you’re adding another layer to proceedings. Options allow you to buy “the option” of buying or selling assets with a fixed price at a given time. You may hear “call options” and “put options” referred to, but don’t worry; this is just a fancy way of saying buy options and sell options, which can have different rates. This can be a slightly more risky way to buy a stock because it depends on the value of that stock increasing after you buy the option, which isn’t always guaranteed.
6. Commodities
Unlike a stock, a commodity is a physical entity. There are, in essence, four main categories for commodities: metals, agriculture, energy, and livestock. The value of these commodities can rise or fall sharply depending on current events. Let’s say, for example, that there is a major oil spill disaster. This can mean that the value of crude oil, which is an energy commodity, plummets. As such, you should be sure that you’ve accrued a lot of knowledge about the commodity you’re investing in because the last thing you want is to be blindsided by a sudden drop in value.
7. Bonds
Bonds are one of the most common types of investments, alongside stocks. When you buy a bond, you’re essentially providing a loan to the entity from which you purchased it. The loan will come with a repayment date and an interest rate, and the interest rate on the bond is how you make money on your investment. Just like loans, you will find that bonds can either be secured or unsecured, with the company potentially putting up an asset against the guarantee that it will repay its loan. Bonds are, by nature, a little volatile, but they can be solid investments if you pick the right ones.
8. Property
Most investors don’t consider investing in property until they’ve accumulated serious funds. However, if you do have a high capital level and you’re looking for equally high returns, then property can be a great investment for you. In essence, you’re on the hunt for properties that you can buy below market value and then resell at a higher price. To do so, you might need to “flip” the property (depending on the condition it’s in when you buy it) or simply wait for a more advantageous moment when the market is stronger in order to sell.