Types Of Investing

The Types of Investment – A Guide for Beginners

Investing may sound easy but once you know the different ways you can invest your money, things might get a little confusing, especially if you’re a beginner. When it comes to succeeding in investing, knowing the fundamentals will get you a long way.

The Basic Types of Investment

The first type of investment options you are probably most familiar with are savings accounts. Most families opt for this type of financial investment option since it is a safe way for you to keep your money. Investing always involves some amount of risk but with savings account, you are given as little risk as possible of losing your money. Because the risk is minimal with this type of investment, the interest rates tend to be very low. However with no input required by the investor (simply funding the bank account with money), it is a very popular choice for the 'lazy investor'.

Next is the known as the Certificates of Deposit or CDs. It’s similar to a savings account but the only difference is that the interest rates tend to be a little bit higher. With CDs, you will have to invest a certain amount of money for a given amount of time, both of which are fixed. The tendency with CDs is that the interest rates go higher if the time period of investment is longer.

If you want an account that offers interest rates that are a lot higher, you would want to settle for Money Market Deposit Accounts. You are given an easy access to your money and they are generally safe for investing. The services that this type of investment instrument offers is similar to checking accounts, the only difference is the limits imposed on the number of transfers or withdrawals you make.

Advanced Types Of Investment

Advanced types of investment include stocks, bonds, and mutual funds. Stocks work like this – when you buy a company’s stocks, you get to own part of that company’s assets. When a company does well, the stock prices do too and you earn profit. However, if the company your stocks belong to does poorly, you may end up losing some or all of the money you invested.

If you want a safe option, you can opt to invest in bonds. Bonds are generally a certificate of debt issued by a company or government. You, in turn, will promise to pay back the amount at a specified date in the future, with interest. The advantages with bonds are that the interest rates are fixed and the term can last up to thirty years. With bonds, you are given the safety of being paid beforehand if in case the company becomes bankrupt.

Mutual funds are also one of the advanced types of investment. What happens here is that your money will be pooled together with a group of investors. There will be a mutual fund manager who is responsible for investing your money in different securities (investment options). The greatest advantage of mutual funds is that your investment options are diversified thereby reducing the risk of losing money. The disadvantage with this type of investment is the existence of fees. When you earn a profit, you will have to pay an income tax.

Lastly, you have the Annuities which are basically contracts sold by insurance companies. If you invest in Annuities, you will be paid at specific intervals after a said event, of which usually is retirement. The advantages with Annuities are that they are considered safe and they have a death benefit available for the Annuity holder.

Conclusion On The Different Types Of Investing

Remember that with investing, you need to know the different types of investment well before delving into it. You want to earn returns, not to lose your money.