There are different ways to make money from an investment, but they all have unique characteristics and risk factors. The type of investment you choose depends on how much you are willing to invest, and the minimum required amount.
Each type of investment has its advantages and disadvantages. This article will cover 11 types of investments you can make. But before we jump into the different types of investments, let’s revise what investments are and how they work.
What are investments?
An investment is a sum of money invested in an organization, real estate, or even stocks to generate a return on the amount invested. The return helps one earn money from the initial amount invested.
In simple words, investing your money is a way to make more money from it. The more you invest, the greater the amount of profit you stand to gain. There are several ways to invest your money, but you should remember that every type of investment varies from each other and comes with its unique advantages and disadvantages. It’s also important to remember that the higher the risk associated with an investment, the higher its returns.
How do investments work?
Let’s take the example of stocks. If you purchase a share of stock of a particular company, then that means that you now own part of the business. With time, the price of this share might go up or down, which will affect your profits or losses accordingly.
As with every investment, there is no guarantee of how much profit you can make from it. But investing in stocks has been a very popular form of investment over the years. In fact, investing in stocks is considered one of the best ways to make money from an investment.
Different types of investments:
Here are 11 different types of investments that you can make
When you purchase a share of stock in a company, then that means that you now own part of the business. Depending on the company’s profit, your investment also increases or decreases accordingly. If you buy stocks at a particular price and sell them at a higher price, you make a profit on your investment.
But remember, there is no guarantee as to how much profit you can make from this investment, as that depends on the company’s overall performance.
Bonds are basically loaned money to an organization or government from an investor who receives a fixed interest rate on the amount they lend to the government or organization. When you purchase bonds, you’re lending your money to the government or organization for a fixed amount of time. They give you a specific rate of return on your money.
Bonds are relatively safe investments as they have a low-risk factor associated with them. It is because the government or organization will always pay you no matter what happens. The government can basically increase income tax to have enough money to pay bondholders.
3. Mutual funds:
When you invest your money in a mutual fund, your money is now pooled with several other individuals’ investments and is used for greater gains. You can purchase a share in a mutual fund and then sit back and watch your money grow. The mutual fund company will invest your money in stocks, bonds, etc., and you stand to gain depending on how well it performs.
Mutual funds are also safe investments because professionals will handle your money. Thus, you don’t have to keep a constant eye on your investments.
4. Certificate of deposit:
A certificate of deposit, also called CD, is basically an investment that allows you to earn a fixed interest rate for a specific period. You purchase these certificates from financial institutions like banks and credit unions, and the institution invests your money for you.
You can withdraw your money or roll it over to get another certificate when your investment matures. CD is also one of the safest investments as it has a very low-risk factor associated with them.
5. Real estate:
If you have a certain amount of money saved up for a rainy day, then Real Estate can be an excellent investment for you. When you purchase a piece of Real Estate, your investment can increase or decrease depending on how the prices of that particular piece of property go.
Unless there is a financial crisis that affects Real Estates, your investment value will increase over time. Real Estate investment is one of the best investments as your eyes are on something physical, unlike other paper-based investments like stocks or bonds.
6. Exchange-traded funds or ETFs:
Exchange-traded funds or ETFs are mutual funds that track an index and are traded on the stock market like regular stocks. This means that you can buy and sell these ETFs throughout the day.
For example, suppose there is a large technology company whose stocks are doing great. In that case, you can buy ETFs that track the performance of this company to make profits. ETFs have lower fees, but the risk factors vary. You can check a complete guide on ETFs from this article by Nerdwallet.
7. Retirement plans:
Retirement plans are basically accounts designed to help you accumulate money for your retirement. If you make regular, fixed investments in a retirement account, your investment will grow over time.
Some of the common types of retirement plans include 401(k), 403(b), and IRA or individual retirement accounts. These are fairly safe investments as you are essentially saving your money for the future.
8. Index funds:
Index funds are mutual funds that track the overall performance of a particular index like the S&P 500. If the stocks and bonds in this index do well, you stand to gain from your investment in index funds.
With this type of investment, you own smaller shares of 100s of companies which makes your investment relatively safe. Since all the companies can’t perform poorly simultaneously, you stand to make a profit or break even on your investment.
9. Fixed deposits:
When you deposit your money in a fixed deposit account, the bank will pay you interest at regular intervals for a specific time frame. It is probably one of the safest investments on the list. But the return you will get isn’t that great.
The average rate of return is somewhere between 4-6% annually. So if you are looking for a safe and steady investment, then this one is the way to go.
10. Precious metals:
Gold, silver, and platinum are considered to be precious metals. They have been used as a source of currency for centuries, and the value is not likely to drop anytime soon. Precious metals are considered a store of value.
These investments will retain their worth even if paper currencies lose theirs. So this makes these metals relatively safe investment options too. It is good to invest in one of these metals if you are looking for a safe investment that can be converted into cash when needed.
Last but not least, cryptocurrencies are relatively new to the investment scene. So the risk factor is much higher when compared to other options. But by making investments in cryptocurrencies, you will be able to get a return of over 1,000% within a short period.
The value might not be fixed, and it can fluctuate at times. Still, in general, these currencies have grown exponentially in recent years. If you invest in cryptos, you should be patient for at least 2 to 3 years to get a significant return on your investment.
So this was a look at some of the common types of investments you can make. If you are looking for an investment opportunity, it is important to know which one is suitable for your needs so that you don’t lose money on something that doesn’t suit your requirements.
Also, make sure to diversify your portfolio with different types of investments. By diversifying your portfolio, you are not putting all your eggs in one basket. You will hardly lose if you diversify your investments.