Becoming wealthy or financially secure almost always requires investing. However, with so many types of investments out there, it is difficult to know where to start. By reading about and understanding what is available, it becomes much easier to make a decision.
Cash investments
Cash investments include things like simple bank savings accounts, certificates of deposit and treasury bills. While these investments are very safe, they offer much lower average rates of return over time. Any investor who has built up enough financial reserves to move at least part of their money into something more risky should do so.
Bonds
Buying a bond is basically making a loan to the entity issuing the bonds. In return, the issuer agrees to repay the face value of the bond plus interest. The interest will depend on factors such as the prevailing rates at the time, length of the bond and the level of risk of the issuer being unable to pay back the bond. On average, the risks of bonds are much lower than stocks and some government bonds are considered almost totally safe. However, with this reduced risk comes a lower return. Bonds are most popular with investors who are willing to accept a lower payback in return for a safer investment.
Stocks
Socks can be thought of as buying a part of the company by purchasing its shares. Depending on the stock and market conditions, stock market investing can be risky with the value of the stock fluctuating greatly over time. As a long-term investment though, they perform better on average than things like bonds.
Mutual funds
By diversifying, the risks of stock market investing can be reduced. For those investors do not have the time and money to track many stocks, mutual funds are a good option. They consist of a pool of money invested in stocks and managed by professionals. With everything from buying, selling and automatic contributions taken care of, they require very little time from investors.
Exchange traded funds, better known as ETFs, are baskets of investments designed to track a certain index. Since they are not actively managed, their fees are lower than mutual funds. Also, they can be bought and sold much like a regular stock and do not have the minimum requirements mutual funds usually do.
Real estate
While real estate investing requires a considerable sum of money upfront, it gives the investor a lot of control over the investment. Those investing in real estate may also need to spend considerable time managing their properties. Real estate investing produces returns through rental and lease income as well as capital appreciation. Since the general trend in real estate is up as the population grows, it can be a very good investment for those willing to make the commitment.
Commodities
While commodity investing can produce high returns quickly, there is also the risk of huge losses. Commodities consist of resources in a raw, unprocessed state. Requiring specialized knowledge and carrying so much risk, this type of investing should only be carried out by those with specialized knowledge in the field. However, through stocks, ETFs and mutual funds, even smaller investors looking to diversify into commodities can do so in an indirect manner.
There are a lot of investment options. No single one is the best in every situation. For many people, a combination will likely offer the most consistent returns.