There are a lot of different ways to invest. To help you decide which type of investment suites you I have compiled a list of some of the most common types of investment.
Generally categorized under fixed income securities, bond refers to securities founded on debt. Purchasing a bond means you are lending out money to either a company or government and in return you earn interest on your money and eventually get payed back the amount you lent out.
The main advantage of bonds is they are very safe because say a government borrows you money, then you are virtually guaranteed to get your money back and especially if it’s from a stable government. However this may come at a cost and yield very little returns due to the low risks involved.
Purchasing equities or stocks automatically makes you part owner of a business. You earn the right to vote at any shareholders’ meeting and receive any dividends which is a fancy name of profits the company gives to owners. Compared to bonds which offer a steady stream of returns, stocks can be rather volatile in nature which means their value fluctuates on a daily basis depending on how the market is. With stocks you don’t have any guarantee because some stocks barely pay dividends and the only way to make money is if the stock’s value increases. Unlike bonds, stocks yield relatively high returns but with a high risk of losing some if not all of your investment.
mutual funds can be defined as a collection of both stocks and bonds. Buying mutual funds means pooling money with other investors as a group and paying a professional to select profitable securities for the entire group. They are usually set up with clearly thought through strategies in mind, and can focus on: government stocks, large or small stocks, and company or industry stock among others. The main advantage is you invest your money without the experience needed in choosing a reasonable investment. In Theory you get better returns through a professional than if you invested yourself.
Many if not most investors fall in the category of bonds, securities and mutual funds but there are a lot more complicated ways and strategies of investing which is why as a beginner it’s always advisable to stick to the three. You probably won’t need to worry a lot about other ways of investing at the beginning because they tend to have very high risks but at the same time very high returns which require experts and professionals. So if by any chance you are not sure of what you are doing stick to mutual funds because somebody else handles the entire process for you.