Knowing what types of investments are out there is the first step to making an informed decision regarding how you want to invest your money.Different investments have different risks associated with them.Knowing what types of risks you are assuming is vital.Depending on how much time you have to invest, knowing the risk that you are willing to assume could mean the difference between making money from your investment or being out of luck.Keeping your investment objectives in mind, here is a brief summary of the different types of investments you may want to consider adding to your investment portfolio.
Bonds
A bond is a type of investment that is founded on debt.When you buy a bond, you are essentially lending your money to a company or government.The company or government then uses your investment to lend money to others.In return, you get a portion of the interest payment as well as eventually having your initial investment re-paid to you.Bonds are also referred to as fixed income securities because your rate of return is virtually guaranteed (assuming that you invest in bonds with a government that is considered economically stable).People like bonds because they are considered low risk or even risk free in the United States.The trade off to having a risk free investment is that the return is a great deal lower than it would be with a different type of investment.Although many people invest in bonds, bonds generally represent only a small portion of an investor’s portfolio.
Stocks
Stocks are essentially ownership rights to a particular business.When you buy stock in a company, you become partial owner of that company.You have voting rights within that company and a claim to the potential profits of that company.These paid-out profits to investors are called dividends.Not all stocks pay out regular dividends and the ones that do are typically much more expensive.Stocks are considered high risk or volatile investments because their value fluctuates too easily and frequently.When you buy a stock there is no guarantee that you will ever make money from your investment.In fact, you can lose the value of that stock completely.If you are lucky enough to buy a stock that increases in value, you stand to gain more than you ever could with a more secure investment, but while the potential for high returns is there, the frequency of lofty pay-outs is not high.
Mutual funds
A mutual fund is an assortment of stocks and bonds.When you buy a mutual fund, you are adding your money to the investments of others and having that grouping of investments managed by another party.There are all kinds of different mutual funds.Some mutual funds are more heavily focused on bonds and others have an emphasis on stocks.Choosing which kinds of mutual funds to invest with can be difficult, but the advantage to investing with a mutual fund is that someone else can help do the investment work for you.With a mutual fund, you do not need to commit the time and the expertise that you would otherwise be required to commit if you were managing your own investments.You also stand to benefit from the potential of earning more money by handing over responsibility for managing that money to someone who is trained and educated to do so.
Alternative investments
Alternative investments include options, futures, FOREX, gold, real estate, etc.These types of securities are the most complicated and require well thought out investment strategies to yield any kind of increase for the investor.Alternative investments are typically for those who have been investing on their own for a while and who have developed the know-how to manage these more complicated investments.If you are a beginner in the investment world, you probably don’t need to worry about alternative investments.