The Different Types of Investments You Need To Know About (Part 2)
After taking the time to read part 1 in our “20 types of investments” series, it’s our hope that you’re excited about learning more.
Knowledge is power when it comes to choosing the right investments. Some people opt for high-risk investments in hopes of hitting it big, while others are safer with their money and use other types of investment accounts.
There’s no right or wrong way to invest. What’s important is that you choose a strategy that suits your risk tolerance, current financial standing, and future goals.
Below, we dive into the finer details of 10 additional investments.
The Different Types of Investments
Every investment is unique. Some will suit you well, while others should be put on the back-burner for the time being. Here are 10 types of investments worth your consideration.
There are many different types of investments, with stocks among the most popular. When you invest in stocks, you invest directly in a corporation. This is an easy investment to make thanks to a variety of online trading platforms.
With thousands of different types of stocks and types of shares, there’s no limit as to how you can invest. This is a common type of direct investment.
As you compare the different types of investment accounts, a 401(k) is likely to come to mind. This is a retirement savings vehicle provided by your employer. If it’s available to you, it’s a good idea to take advantage — especially if your employer will contribute to it.
3. Individual retirement accounts (IRAs)
An IRA is similar to a 401(k) in the way that it’s for retirement savings. However, it’s not sponsored by an employer. It’s an account you open on your own. There’s both a traditional and Roth IRA.
If you have a large chunk of money you’re looking to invest, an annuity is a top choice. With this, you surrender your money in exchange for guaranteed monthly payments.
5. Real estate
There are many ways to invest in real estate, from flipping homes to buying and renting to land development.
6. Real estate investment trusts (REITs)
If you don’t want to personally invest in real estate — which typically takes a lot of time and money — you can do so through a real estate investment trust.
7. Real estate crowdfunding
Real estate crowdfunding is growing in popularity. Through one of many online platforms, you’re able to pool your money with others to invest in real estate, such as commercial properties.
If you have an asset that you can license out to someone else, you can receive royalties in return. Common examples include physical goods and music.
9. Peer-to-peer (P2P) loans
Some people use P2P loans to borrow money, but others lend money. If you’re looking for an investment, consider offering peer-to-peer loans. This allows you to act as a bank, which puts you in line to earn interest.
10. Intellectual property rights
There are four types of intellectual property rights: trademarks, patents, trade secrets, and copyrights. You can invest in any of these.
Risk Factor and Returns
No matter what type of investment you’re interested in, two things should come to mind: risk factor and returns.
Every investment is a risk. Even when something appears to be safe, that’s not the case. You need to pinpoint your risk tolerance before you choose investments.
From there, consider the potential rate of return. Generally speaking, the higher the risk the greater chance there is for a large return on investment.
How to Purchase Different Types of Investments
Some types of investments are available for purchase. Other types of investments simply require you to set up an account.
For example, if you want to invest in stocks, you can do so through one of many online trading platforms. These platforms also allow you to purchase different types of mutual funds, corporate bonds, exchange-traded funds, and more.
For a 401(k) or IRA, there’s nothing to purchase upfront. Instead, you simply need to set up an account.
From there, you’ll then make investment decisions within your account. For instance, you may want to make an equity investment in a handful of high-growth stocks.
And of course, there are more advanced investments, such as real estate, that require you to take a more hands-on approach. If you want to buy a house to renovate and flip, it’s up to you — with the help of your agent — to find the right property in the right area.
Best Investment Apps
There’s no shortage of investment apps to choose from, but that doesn’t mean you should make a fast decision and hope for the best.
Two investment apps stand out from the crowd:
With Betterment, your investment portfolio is always in good hands. It provides both robo-advising and cash management services, so there’s no limit as to the things you can do with this technology-driven platform. With many types of stock trading, you can’t go wrong.
There’s a big difference between finding the perfect investment opportunity and managing it. That’s where Wealthfront comes into play. If you’re interested in a hands-off approach to investing, Wealthfront is the right choice.
Investment Goals to Aim For
You don’t need defined goals to invest your money, but it always helps. If you need a push in the right direction, here are some of the most common investment goals to aim for. And remember, your investment portfolio can and should hold many types of investments.
Getting married is one of the greatest joys in life. Just the same, planning a wedding is expensive, so you need to invest your money accordingly.
A Career Change
If you decide to change careers, you’ll want to have a financial cushion during your transition. There are many different types of bonds that can give you this.
Starting a Business
Once you know the type of business you want to start, turn your attention to how much capital you need. This will help you determine which types of investments are best.
A Career Break
Taking time off of work is a great way to recharge. However, it can take a toll on your finances, so make sure you have the right investments in place.
Leaving an Inheritance
Do you want to leave an inheritance to your loved ones, such as your children? If so, invest accordingly. Don’t take a lot of risks later in life that could deplete your assets. You must strongly consider the types of investment funds that are best for someone in your age bracket.
Things to Consider Before Investing
In today’s day and age of advanced technology, it’s easier than ever to dive headfirst into an investment. While enthusiasm is good, there are a few things to consider before making any type of investment.
The cheapest way to invest is through a website, often called a platform
With the help of an online platform, you can make a variety of investments. Maybe you want to make a direct investment in a publicly-traded company. Or maybe you’re interested in a mutual fund. Regardless, the cheapest and most efficient way to invest is through an online platform.
Investing in an ISA should ALWAYS be your first port of call
An ISA (individual savings account) is the first type of investment you should make. You’ll feel
much better about your finances once you have several months of living expenses saved.
Research, research, research!
It doesn’t matter if you’re interested in the different types of stock trading, hybrid mutual funds, or the impact of capital gains on your finances, conduct as much research as possible.
An ISA is a low-risk investment that’ll give you financial peace of mind.
Which Types of Investments are Right for You?
There’s no right or wrong answer to this question. Instead, base your investing decisions on details such as:
- Risk tolerance
- The potential return on investment
- Available funds for investing
- Short and long-term goals
Here is a group of frequently asked questions pertaining to investing and finding the best investment opportunity:
Do I have to pay tax on my investments?
Yes. No matter what type of investment it is, you will pay tax on any profits at some point. For example, capital gain taxes come into play when buying and selling stocks.
What makes share prices rise and fall?
The simple answer is supply and demand. That’s what it all boils down to in the end.
Which investments should I avoid?
Any investment that makes you uncomfortable is an investment you should avoid.
With the above guidance, it’s our hope that you now have a clear idea of how, when, and where to invest your money.