Investment is the allocation of valuable resources (money, time etc) with the goal of getting some benefits in the future. For example, my initial investments in this website were money and time. Now I am investing my time and writing skills in this website. I am expecting this website to generate revenue for me in the future. Affiliate marketing, Pay Per Click advertisement, selling ad space, accepting paid articles and there are several other ways this website can be an income-generating asset for me. In financial investment, an investor puts money into some asset and expects growth in the value of that asset. The benefit an investor gets on an investment is called return on investment. There are different types of investment and an insightful investor always looks for the best investments, investments with high returns and low risk. Now, let’s see the different investment options available to you.
Types Of Investment
According to the Financial Industry Regulatory Authority (FINRA), following are the different types of investment:
Saving for College
Alternative Complex Products
This is one of the types of investment offering one of the safest and most convenient ways to invest your savings. Credit unions and banks offer federally insured products. Congress insures these products up to some limit. Bank products offer high liquidity. You can easily deposit, withdraw or transfer the money you have deposited in your bank account. An account holder needs not worry about unexpected emergencies as funds are always available. You can perform any transaction in person, by electronic means and by check as well.
However, the interest you get on bank products is low as compared to other types of investment. So, it is not one of the best investment options. The risk is very low in bank products. Following are the four types of account you can open in a bank.
Money Market Account
Certificates of Deposit
Assets of the top 15 largest banks in the US are $13.2 trillion in total.
Don’t know what is a bond? A bond is an investment an investor makes in a governmental or corporate entity for a definite period of time. There are two actors involved in this type of investment. One is the bond issuer and other is the bondholder. A bond issuer can be a firm, a government, a municipality or a supernational entity. There are the following four types of bond issuers in the United States:
Government Bonds/Treasury Bonds
Bondholder purchases bonds from the bond issuer by giving a certain amount of loan money called bond principal. The bond issuer contractually agrees to return the bond principal (loaned amount) on the maturity date plus a fixed or variable rate of interest. The maturity date is the date on which the bond issuer agrees to return the loaned amount. Investment in bonds is a low-risk investment with predictable income.
When you buy a stock issued by a company, you buy a piece of the ownership of that company. That’s why a stock is also described as ownership certificate of companies issuing stocks. A share is an ownership certificate of a particular company.
Every business needs to arrange funds. In order to raise capital for business operations, companies issue stocks which are purchased by investors. An investor gets a piece of ownership and the company gets money. The trade of stocks happens in the stock market. This is the place where companies issue stocks and investors buy these stocks. Stock price sometimes rises and sometimes falls due to political, economic and some other factors.
There are two types of stocks – common stock and preferred stock.
By investing in stock issued by a company, be it a common stock or a preferred stock, you get fractional ownership of that company. However, a stockholder who owns a common stock gets right to vote. They can vote on corporate issues and other business matters. It’s one vote per stock. An investor holding a common stock can claim dividends.
A preferred stock comes with no voting right. However, a fixed dividend is guaranteed. A stockholder having common stock gets a variable dividend which is never guaranteed. Usually, the board of directors declares this dividend.
A stockholder can reap the benefits of a growing economy. An average annual return on the stock is 10%. Stocks are easy to buy and easy to sell.
However, there is a risk in investing in stock. It all depends on the performance of the company. You will be the last one to get paid if the company goes broke. Investing in stock demands a lot of research about the company. So, an investor should invest wisely without expecting a quick return on investment. Stock price rises and falls very quickly.
It was just a brief introduction to three of the twelve types of investment. I will write about the remaining types of investment in subsequent articles.
Kuldeep Singh is a poet, lyricist, performer, a public speaker and a professional content writer from Chandigarh, the city Beautiful. Apart from writing, he also has a keen interest in programming, especially in Java. He uses Twitter & Facebook on very rare occasions.