What Are My Options for Investing?
Oh, the world of investing! It can be a scary one if you don’t know what you’re doing, but we’re here to help. The best place to start is by understanding the various options out there in terms of what and how you can invest.
What are some options for investing your money?
There are many different options for investing your money – some may be more suitable for your particular situation, while others may not be as appropriate. Let’s start by discussing the main asset groups.
Money Market Assets: This asset group is considered the most liquid and safest of all. Money market accounts are comprised of investment options that are considered to be cash and cash equivalents. Typically, this refers to very safe investments with a term of one year or less. The most common asset in this category includes government-issued treasury bills. Other examples include general savings accounts since you can usually withdraw your funds to cash almost immediately.
Fixed Income Assets: Just as the name of this category suggests, this asset class provides expected fixed incomes. These are payments that you can expect to receive based on some predetermined payout schedule. The most common asset in this category are bonds, which come in a whole variety of shapes, forms and sizes. The most popular are bank, corporate and government bonds. In these cases, you essentially provide a loan, and as a result you receive regular interest payments up until the end of the investment term. At the end of the term, you receive a final interest payment and also payment to cover the initial principal loaned by you. These types of investments are considered safer than equity, since you will be paid as a creditor before shareholders (this is in the case of corporate bonds). Keep in mind that when you invest in bonds, you are committing to a specified timeline before you can withdraw your funds without hassle or fees.
Equity Market: This group comprises of all the securities that can be traded throughout the stock markets. From common stocks, to preferred stocks, to ETFs, and other index funds, equity represents a more volatile asset class. This is seen by the very speculation that occurs in the stock market and consistent fluctuation in stock prices. These are considered riskier than the previous two asset classes, but at the same time they also provide higher returns on average. Generally, you have more control over the allocation of your funds in the equity market since you can enter and exit as you please.
Real Estate: Real estate is one of the most common forms of asset classes. You can invest in real estate through the act of purchasing physical properties, or you can use other means such as REITs (Real Estate Investment Trust). Real estate typically isn’t as volatile as the overall market, making it a good option for reducing the volatility of your investment portfolio.
Commodities: You can also trade in commodities, which include resources like gold, silver, oil and more. People often use commodities to offset the fluctuations in other asset classes. This is based on the reasoning that commodities do not move as much in sync with the overall market. In fact, gold typically acts opposite to the overall market, making this a good tool to hedge risk.
Essentially, there are two major types of investing.
These two types are defined as value investing and growth investing. Here’s the main difference between these two approaches:
Value Stocks: This is when an investor recognizes a discounted price of an asset compared to its normal levels. Thus, investors bet on the fact that the asset will rise back to its normal levels, leaving them with a profit.
Growth Stocks: This approach requires that investors basically bet on a stock to increase in price. Commonly, people who want to bet on the rise of certain industries or companies are partaking in growth investing.
So, there you have it. We have discussed some of the different asset classes and approaches to investing. To learn about other ideas on how to allocate your investment portfolio you can read our article about which asset classes are right for you.
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