Understanding the Different Types of Investments in Finance

Different types of investments in finance

You can find a myriad of options to invest or to expand your financial portfolio. While the options are plenty, you must certainly take into account only those investments that would earn you greater value or returns on investments (VOIs, ROIs).

Introduction

The vast landscape of the finance market has many types of investment options to choose from to add on to your portfolio. The objective is to invest to gain maximum returns from either short-term or long-term investments. However, choosing the ideal type of investment that would earn you great returns could be quite complex; especially when the financial market is saturated with different types of investment.

In this best finance news related article, we will introduce you to the most common and popular types of investments in finance.

Typically, investments in finance fall under three main categories, they are Stocks, Bonds, and Investing in cash and equivalents. Below listed are some of the options that fall under the major categories aimed for long-term growth:

Long-term Investments in Stocks and Bonds

Stocks are often synonymous with investments; they are, in fact, the simplest type of investments. When you buy a company’s stocks, you are garnering part ownership share of the company. Here, the objective is to buy the stocks only to sell them later when the price of the stocks increases.

Investing in stocks is ideal for long term investment plans. All you need to do is, buy the stocks today, but at a lower price and, sell them when the price of the stock doubles or triples.

Bonds unlike stocks involve investing your money as a loan to either a government or corporate entities, for a stipulated time. Once the bond matures, you receive the principal amount along with earned interest.

Compared to stocks, investing in bonds is less risky; however, the trick lies in choosing the bonds with greater interest rates. Nevertheless, unlike stocks, you must invest a predefined amount to buy the bond.

Diversified Investments with Mutual funds

Mutual fund refers to a collective pool of money invested by many investors on a myriad of companies. Depending on how the funds in the poll are managed, they are classified as, passively managed, and actively managed funds.

Actively managed funds involve a fund manager who invests the investors’ money on companies with potential for great returns. Passively managed funds involve tracking major stock market indexes. Apart from this basic classification, mutual funds are also divided into the ones that, only invest in stocks, only invest in bonds, and mix of both.

Exchange-traded-funds (ETFs)

ETFs are a collection of investments that depend on tracking market indices. Unlike mutual funds, the price of ETFs fluctuates as per the market. ETFs as investments are easy to buy and sell on the stock markets.

Retirement Plans & Annuities

Retirement plans are of various types where you invest in an amalgam of Stocks, bonds, mutual funds, etc. Thus, the risks associated with retirement plans are the same as any of the risky investments. However, the tax does not apply to retirement plans unless you withdraw your investment post-retirement when the tax bracket is the least.

Most often, annuities constitute a part of the retirement savings plan. Annuities are contracts that you purchase from an insurance company with the motive of receiving timely payments for stipulated timeframes. While they are less risky when compare to other retirement plans, they do not have scope for greater returns.

ICOs and Cryptocurrencies

Initial Coin Offering (ICO) and cryptocurrencies are gaining quite the popularity, which is attributed to blockchain technology. With cryptos favored as the most preferred type of currency for online transactions, the cryptocurrency market is believed to grow exponentially in the next decade.

Bitcoin was the first cryptocurrency that was introduced and it paved the way for other types of digital currency like Ethereum, Litecoin, Dogecoin, etc. In fact, new types of cryptos are introduced now and then. Surprisingly, the newly introduced cryptocurrencies are well accepted in the market.

ICOs are the brand-new means of raising funds for creating a new cryptocurrency. Thus, investing in ICOs not only provides greater returns on your investments but also provides the new digital currency to the investors.

Conclusion

While there are many options to invest, choosing the ideal plan for your financial portfolio is a little intimidating. As they are often associated with certain risk factors, it is imperative to determine the risk and profit quotient before making an investment.

Jay Richardson

Jay Richardson

Jay Richardson has been a news writer for last five years. He is also an avid trader. Before joining FinanceStead, he was freelance news editor. Jay started in journalism by editing the foremost magazines and then at FinanceStead, he contributes daily news articles on finance industry and helps to others in curating stories.

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