We have briefly covered investment options in the previous two articles. In this article, you will get the basic idea of the following types of investment:

  • Insurance
  • Security Futures
  • Commodity Futures
  • ICO and Cryptocurrencies
  • Alternative and Complex Products


Coming in different forms, insurance is one of those types of investment you must include in your financial plan. Different forms of insurance products including whole life, term life and universal life further have variations. Securities and Exchange Commission (SEC) considers variable universal life insurance and variable universal life as securities. Variable universal life insurance and variable universal life must be registered with SEC.

There are different types of insurance products for meeting specific objectives. Let’s take long-term care insurance as an example. The objective of this product is to cover expenses you will have to incur on health care. These products can be complex like other financial products. You will have to pay fees. Homework will save you from buying a wrong insurance product.

Common life insurance products are:

  • Variable Life Insurance

The death benefit is minimum and premiums are fixed in variable life insurance. The cash value of life insurance is invested in securities. The insurance policy provides an investor with different options. The investor selects a mix of investments. As an investor, you need to know that there is no guarantee of returns. Moreover, cash value also fluctuates.

  • Variable Universal Life Insurance

This insurance product offers benefits of variable life insurance and universal life insurance. You will get insurance coverage and benefits of flexible premium payments plus an investment account.

  • Term Life Insurance

An investor investing in term life insurance gets specified and limited period insurance coverage. This specified and limited period is known as the term. At the end of a renewal period or as you age, premiums for the majority of the term policies often goes up. Terms, policies and insurance coverage end when the investor does not renew.

  • Whole Life Insurance

It is a type of permanent life insurance also known as ordinary life insurance. When you invest in a whole life insurance, you get insurance coverage for the life. Premiums are always same. The cash value you build is a saving feature.

  • Universal Life Insurance

When you invest in universal life insurance, you get insurance coverage for the life. Premiums in this insurance product are flexible. Deductions like insurance protection and other costs are made from the policy account value or cash.

Security Futures

Security futures is one of the riskiest types of investment in the US. There are federal regulations in place permitting trade in security futures contracts on single stocks. These single stocks are known as single stock futures or SSFs. These federal regulations permit trade in narrow-based indices as well.

This is one of those types of investment which are not for all investors. Avoid buying security futures if you do not understand security futures. You might end up losing potentially an unlimited amount of money. The amount you lose can be more than the amount you have deposited with the broker. If you are interested in types of investment which are highly leveraged with a small amount of money controlling greater value assets, this investment option is one of them.

Some Basics of Security Futures

Security Futures Contract

It is a legal agreement between two parties trading a specific number of shares. These shares are of an individual stock or narrow-based security index being traded at specific prices. Both parties contractually agree to buy or sell these shares in the future on a date specified in the contract. This date is known as the expiration date or settlement date.

Buying a future contract binds you into a contract called a “long” contract which binds you to buy the underlying security. Similarly, selling a future contract binds you into a contract called “short” contract binding you to sell the underlying security.

Security Futures Contract Specifications

Contract Size

One stock futures contract typically represents 100 shares of underlying stock. Narrow-based index future contract, on the other hand, represents the index’s value times a dollar amount the exchange sets.

Contract Month

The security futures contract expires in the contract month. There are different numbers of contract months for trading at a given time. Different exchanges have a different number of contract months.

Last Trading Day

This is the last day in the contract month when the trading of the contract takes place. This usually happens on the third Friday of the month.

Manner of Settlement

The manner of settlement can be cash settlement or the underlying security can be delivered physically. However, physical delivery is the most common in security futures contracts.

A Point to Remember

The tax structure in the case of security futures trading is complex. Therefore, seek advice from a tax advisor.

Possible risks associated with security futures

  • There is a risk of unlimited losses and the loss might be more than the investment.
  • Security futures not only bring you large and immediate gains but large and immediate losses as well.
  • Due to the nature of futures transactions and leverage involved in futures transactions, you might experience losses immediately.
  • There are some market conditions in which liquidation of a position is difficult or impossible. These conditions include trading halted due to some trading activity in the underlying security or the security futures, trading halted due to some recent news involving the underlying security, computer system failures in the exchange or sometimes the market is not liquid.
  • The prices of security futures under some market conditions may not uphold their customary to the prices of the underlying index or security.

Commodity Futures

This contract is an agreement for buying or selling a commodity in a specific quantity at a specific price on a specific date in the future. Apart from financial instruments and currencies, commodities also include oil, metals, animal products and grains. The trade of futures contracts goes on on the floor of commodity exchanges. However, there are some limited exceptions. The federal government agency CFTC (Commodity Futures Trading Commission) takes care of the regulation of commodity options, commodity futures and also swaps trading markets.

If you are planning to trade futures with public or you want to give futures trading related advice, registered with NFA (National Futures Association). NFA is the independent regulatory body for investors trading futures with the public. When you are working with an individual or a firm to invest in commodity futures, make sure that they are registered. And, ensure that they are subjected to disciplinary actions. You can also use BASIC (Background Affiliation Status Information Center) database containing both non-regulatory and regulatory action history of all futures market participants.

ICOs and Cryptocurrencies

ICOs (Initial Coins Offerings) offer a way of raising funds with cryptocurrencies. ICO startups are raising billions of dollars. There are literally numerous different cryptocurrencies you can buy and sell through several cryptocurrency exchanges. This is the reason why ICOs and cryptocurrencies have sparked the interest of investors. However, the ICOs and cryptocurrencies market comes with some risks including:

  • It is unregulated.
  • There is no official licensing in place.
  • Cryptocurrencies or ICO tokens are qualified as different things such as equity, prepaid goods/services, debts and sometimes as property. So, tax structure for ICOs and cryptocurrencies is complex.
  • Though ICOs running on the Blockchain technology are very secure, still there are risks of identity theft and fraud.
  • ICOs are not legal in some countries.

So, the ICO market is both good and bad. 46% of the ICO startups failed in 2017.

Alternative and Complex Products

These are types of investment products offering alternatives to bond investments and conventional stocks. Alternative and complex products are also referred to as non-conventional investments or structured products. If we compare to traditional investments, alternative and complex products are riskier and more complex. Higher returns and special features of these products often temp investors. Principal protected notes and high-yield bonds are examples of these products. Though these types of investment products offer a high return on investment, credit ratings are low. These products use options, futures and complicated trading strategies to achieve investment goals. An investor should see the risks, rewards and other features of each product.

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