So you’re curious about investments, but you’re not sure where to start. Investing can seem like a big lofty adult goal, but with a bit of research and knowledge, you can begin to attain your financial goals by investing in your future.
If you’re curious about how investments work, the types of investments you can make, and what investments can do for you, keep reading!
How Investments Work
Investing is a means to increase your funds, potentially. In an ideal situation, an investor purchases financial products (aka investments) at a specific price, waits for them to increase in value, and then sells them at a higher price than initially bought.
Of course, this is a very simplified version of investing. It can be near impossible to predict which investments will appreciate in value and which will ultimately cost the investor money. To get a better understanding of what types of assets one could invest in, let’s go over the main different types of investment.
Types of Investments
When most people hear the word “investment,” they instantly think of stocks. While stocks are a key component of investment, they are not the end-all-be-all of investment. In fact, stocks are only considered a subcategory of one type of investment! Click here to know more about how to short an ETF and to see more stock investment guides.
Curious about what kind of portfolio you can build? Let’s go over the different types of investments.
Growth investments are the assets investors purchase with the hope of appreciating in value. It’s common to hear stories of people getting rich off investing in random small companies that turn out to become a household name, that is the dream of any investor.
While growth investments tend to have the highest return on investment, they also carry the greatest amount of risk. Markets fluctuate, and if the investor is not prepared to weather those fluctuations, they might be forced to sell their assets at a loss.
While it’s unlikely that you will just so happen to pick shares in the next Uber, building a diverse portfolio with plenty of growth investments can help to bring in passive income as the portfolio appreciates in value. Let’s go over some of the most common types of growth investments:
Company shares, also known as stocks or equities, are one of the most common forms of investment. As stated before, it’s unlikely that you’re going to buy stocks in the next Uber, so they’re hardly a get-rich-quick scheme!
Most experts advise investors to consider company shares to be a medium-to-long-term investment. Investors with a more conservative mindset typically choose larger, more established corporations to buy shares from, while more adventurous investors look for startups. It is generally considered good practice to maintain a diversified portfolio.
Property is generally considered a fairly safe growth investment. Even though property can take a long time to appreciate in value, a home is a far better shelter than a stock option! Even if you choose not to live in the property you purchase, you can still rent out the property to generate passive income.
Investors looking to make a short-term profit can buy a run down-property and “flip” the house, or renovate, so it can sell at a much higher price point. While there is a great profit to be made off of flipping houses, it also carries a big risk of going over budget and selling at a loss.
For those curious about day trading, cryptocurrency is one of the fastest-growing investments available on the market. Because most cryptocurrencies are constantly fluctuating in value, day traders will often buy a cryptocurrency at a low price, and then sell it again when it rises in value.
However, because cryptocurrency’s value fluctuates so much, it is also considered the riskiest of all growth investments.
Unlike growth investments which focus on growing the fund, defensive investments focus more on risk mitigation. If you’re hoping to build a portfolio that has a greater chance of appreciating in value over a longer period of time, focusing more on the defensive investments in your portfolio might be a good idea.
Investors with a more defensive mindset tend to prioritize acquiring high-quality short-maturity bonds, like treasury notes and blue-chip stocks. They also look for company shares, but unlike growth investors who look for promising startups, conservative investors choose established companies with good track records.
Cash investments are low-risk, low-return, short-term investments. Usually, a cash investment lasts fewer than 90 days. The return typically comes from interest payment. Many investors see cash investments not as an investment themselves, but rather as a place to keep money set aside for investing while they sign up for investment newsletters and research the assets they wish to purchase.
What Investments Can Do For You
Grow your money at a greater rate than saving in a bank account
One of the biggest advantages of investing is that investments grow faster than mere bank interest. Of course, it also comes at a higher risk, so that’s why it’s important to do research, so you can know exactly what you are doing and what risks you as an investor are willing to take on.
Generate passive income
Equity can generate income for shareholders even when they are not selling shares in the form of dividends. If you have a property that you’re not living in, it can be rented out.
Build a retirement fund
Social security as we know it is in a rather precarious place, it’s best to not leave that up to fate!
Create an inheritance to pass on for generations
Especially if you invest in property, even if you decide not to cash out, investments can keep creating wealth for generations.
How To Get Started
In the old days, you used to have to hire an investment broker, but these days it’s easier than ever to start investing! There are several investment apps and investment newsletters to help you get started.
When it comes to investing, there’s a lot going on, but when you break it down bit by bit, it becomes easier to understand. If you’re curious, start today! A fraction of your paycheck every month could change your life!