Any investment is designed for growth, but it can also depreciate. Generally speaking, those investments with the highest growth potential are likely to go up and down along the way.
Each type of investment provides a different level of risk and income. Once you are fully aware of the various forms and types of investment, you can start forming a mix of assets and building an investment portfolio that suits your circumstances and investment goals.
There are many types of investments, some of which are great for beginners, while others need more experience.
Types of investment
Four main types of investment offer different levels of risk and. Most investors develop a strategy that includes more than one investment type to distribute risks and maximize returns.
Types of investment – Stock
When you invest in the stock of a company, you buy a share of ownership in that company. And you become its shareholders. Equities are arguably the riskiest asset class, but they are also the most beneficial.
A stock investor can make a profit in two ways—increase in share price and dividends. An increase in the value of a share is not income unless the stock is sold. In comparison, the prizes are the regular income paid to the shareholder from the company’s profits. If you are a long-term investor, it is better to reinvest the earnings than cash them out. Not all companies pay dividends to their shareholders, and the earnings vary widely from company to company.
There are two main types of shares: common stock and preferred stock
The returns and investment risks differ for both types of stocks, depending on the economy, political landscape, company performance, and other stock market factors. It is not recommended to invest in stocks in the short term (speculation) as it is difficult to anticipate the market and predict future events.
Types of investment – Real estate
Real estate is also considered a sustainable investment because the prices of homes and other properties can increase dramatically over a medium to long term period.
They say the value of real estate never goes down. Some people stopped saying this after the 2008 financial crisis, yet the real estate may get sick and never dies. The truth is that real estate rarely loses its value over long periods. The amount usually increases at a faster rate than the rate of inflation.
It is possible to invest directly by purchasing a property and indirectly through a real estate investment fund.
Commodities and tangible assets
Commodities are physical or tangible assets that have value because of their content or characteristics, in addition to those raw materials that are used to produce other commodities. They are bought and sold on the stock exchange or the money market. They trade in commodities, not stocks. They fall into four main categories:
- Energy: crude oil, natural gas, gasoline, and heating oil.
- Agriculture: wheat, corn, soybeans, cotton, sugar, coffee, and cocoa.
- Industrial metals: aluminum, copper, and zinc.
- Precious metals: gold and silver.
This asset class tends to be more stable than financial assets and is often affected less by inflation, exchange rate fluctuations, and other macroeconomic factors.
This was just a brief overview of the investment types and asset classes. Each one has its pros and cons. While commodities have a higher risk ratio, stocks, real estate investments, and cash investments come with the lowest risks.
The choice of the investment depends on your willingness to take risks required to achieve the returns you expect. Remember that high risk does not always mean significant returns, so diversify your investments to reduce your risk as much as possible.