There are four main types of investment, or asset classes, to choose from, each with different characteristics, risks and benefits, growing investments. Think of different types of investments as tools that can help you achieve your financial goals. Each type of broad investment, from banking products to stocks and bonds, has its own general set of features, risk factors and ways in which investors can use them. Learn more about the different types of investments below.
Stocks, also known as stocks or stocks, may be the most well-known and simplest type of investment. When you buy shares, you buy a stake in a publicly traded company. Many of the country's biggest companies think that General Motors, Apple and Facebook are publicly traded, which means you can buy shares in them. When you buy a bond, you're basically lending money to an entity.
In general, this is a company or a government entity. Companies issue corporate bonds, while local governments issue municipal bonds. The Treasury issues bonds, notes and treasury bills, all of which are debt instruments that investors buy. The rate of return on bonds is usually much lower than that of stocks, but bonds also tend to have a lower risk.
There is still a certain risk, of course. The company you buy a bond from could retire or the government could stop paying. However, Treasury bonds, notes and bills are considered to be very secure investments. Mutual funds carry many of the same risks as stocks and bonds, depending on what they're invested in.
However, the risk is usually lower, because investments are inherently diversified. Exchange-traded funds (ETFs) are similar to mutual funds in that they are a group of investments that follow a market index. Unlike mutual funds, which are bought through a fund company, ETF shares are bought and sold on the stock markets. Their price fluctuates throughout the trading day, while the value of mutual funds is simply the net asset value of your investments, which is calculated at the end of each trading session.
There are several types of retirement plans. Worker retirement plans, sponsored by your employer, include 401 (k) and 403 (b) plans. If you don't have access to a retirement plan, you can get an individual retirement plan (IRA), the traditional or Roth type. You've probably heard of stocks, bonds, ETFs and mutual funds.
But what are they? A stock is an investment that represents owning a part of a company, also called a stock. As a shareholder, you have the right (among other things) to share in the company's profits if they are paid in the form of dividends. Stocks may offer potential growth faster than other types of investments (such as bonds), but they carry more risks. A bond is an investment that represents a loan to an entity, such as a company, municipality, or other government agency.
In exchange for the loan, that entity agrees to repay the full amount of the loan on a specific date and usually provides regular interest payments along the way. Bonds may offer a smoother ride than other types of investments (such as stocks), but they may not offer as much upside potential in return. ETFs and mutual funds are essentially baskets of stocks, bonds, or other investments that pool the money of many investors. Because they are generally comprised of a diversified mix of investments, ETFs and mutual funds may offer less risk than individual stocks and bonds.
ETFs and mutual funds can help you diversify without having to buy individual investments, such as stocks and bonds. Both charge management fees based on a percentage of your total investment and can be actively or passively managed. An allocation fund, an ETF, or investment fund comprised of more than one type of investment (such as stocks, bonds, or cash) can be a simple way to achieve diversification. Each type of investment offers a different level of risk and reward, giving you one or two good options no matter what your goal is.
When designing, creating and maintaining your portfolio, make sure you understand the four types of investments. There are two main ways to buy the different types of investments you may be interested in buying. Mutual funds follow an established strategy: a fund could invest in a specific type of stocks or bonds, such as international stocks or government bonds. Investors should consider each type of investment before determining an asset allocation that aligns with their overall financial objectives.
An index fund is a type of investment fund that passively tracks an index, rather than paying an administrator to choose investments. Also note that in recent decades some types of interest payment instruments have been designed to have a lower risk of inflation, especially the risk of unexpected inflation. It includes checking accounts, savings accounts, money market funds, certificates of deposit (CD), some types of annuities, mortgages, hard money loans, peer-to-peer loans, and all types of bonds, including government and corporate bonds. Here are six types of investments you might consider for long-term growth and what you should know about each one.
Distributing your money between different types of investments (diversification) can reduce the effects of ups and downs. . .