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8 Types of Investment: What are they and how they Work

People generally think of stocks and bonds when they’re thinking about investing. But the truth is that there are different types of investment to choose from.

Think of investment as your tool to reach your financial goals as this one of the objectives of investment. Each type of investment has its own set of aspects and risk factors to consider. These are the best investments for the best return on money.

To learn more about risk in investments, read about the 10 Types of Investment Risk

Here the 8 types of investment

Ownership Investment

These are the investments that come to mind for most people when they hear the word “investment.” Having an ownership investment means owning a particular asset. In addition, they the most volatile and profitable, and that’s something that needs to be expected.

Stocks

An equity, stock or share are the same. A stock provides you a stake in a company and its profit. Meaning, you get partial ownership of a public company. Generally speaking, all traded securities, such as futures, forex, etc., are ownership investments, even if it’s a contract.

Thinking about investing in stocks? Read our guide: How to Choose the Best Stock to Trade?

Real Estate

Houses, apartments, and whatnot that you buy to rent out or repair then resell are investments. But the house you live in doesn’t fit the category since it provides you a basic need.

coins stacked in an ascending order and a house at the end and a finger about to put in a coin

Business

The money you put into a business is an investment. As entrepreneurship is one of the hardest investments, it still has an extremely large potential returns. Creating a product or service and selling it to people can make huge fortunes.

Precious Objects

Precious metals, collectibles, art are an ownership investment if the intention is to resell them for a profit. However, precious metals and collectibles are not a good investment for many reasons, but they are still an investment. Like a house, damages can mean physical depreciation. Hence, they are required upkeep and storage costs that cut into eventual profits.

hands holding a bag with the dollar logo and wooden background

Lending Investment

A lending investment is like being the bank. You buy a debt that’s expected to be repaid. Basically, these are low-risk, low-reward investments. Therefore, they are much a safer investment, but the return is low.

Bond

Buying a bond means loaning money to an entity, such as a company or the government. The entity will pay you back over a set period of time with a fixed interest rate.

You can read more about bonds here in Basic of Bonds Explained.

Certificate of Deposit (CD)

a bank that issues a promissory note in exchange for your money is a CD. It’s almost a savings account, but instead of taking your money out at any time, you commit to leaving it in the account. As a return, they’ll offer a higher interest rated depending on how long you invest in them.

Savings Account

Essentially, you are lending money to the bank. It will dole out in the form of loans, and the return is currently quite low. However, there’s no risk because of the Federal Deposit Insurance Corporation.

Cash Equivalent

Cash equivalents are investments that are as good as cash, which means they’re easy to convert back into cash. An example of this investment is a simple savings account, or a money maker fund.

Money Market Funds

money market funds’ return is very small for a 1% to 2%. Consequently, the risks are also small. Moreover, these are also more liquid than other investments. That means you can write checks out of many market accounts just as you can with checking account.

Conclusion

Earning cash through investing requires research and evaluating an investment opportunity. Make first an investment plan and you could check out our low risk investments with high returns guide.

With so many types of investment, knowing which exactly to invest can get quite complicated. Hopefully, this reference will help you which investments to start. And as you make your way up, you might have to consider portfolio diversification.

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