Investing is an essential and powerful tool for making wealth and achieving financial goals. Investing wisely can lead you to achieve objective goals (Like building wealth, Securing retirement, children's education, etc., which will help you secure your future and make you financially independent. Investing can be done when you think about the future first. Investment is like growing a tree; investing our time and care for the seeds will transform into fruitful trees. But today, people are afraid of investing because they don't have proper investment knowledge. So many investing schemes are available, making it difficult to understand which investing option is right. So, in this blog, you will get some investment types and their description, which helps to understand each investment and makes choices clear. Investing is a process where you can invest your money and earn more.
DIFFERENT INVESTMENT TYPES
There are several types of investment.
STOCKS: Stocks are a type of investment, and they are also known as shares and equities. Stocks are divided into shares, and each share shows the unit ownership of the company, so when you buy a company's stocks, you own a small piece of that company and become a shareholder.
- We can also say that stocks represent ownership in the company.
- Stocks go up and down based on demand and supply; if more people buy a stock, the price goes up, and if more people want to sell stock, the price goes down.
- Stock is bought and sold on stock exchanges.
- Many people buy stocks, hoping that the value of the stock will increase over time.
- Once the value of shares increases, people sell them at a higher price.
- Some people invest money for the long term, holding their stock for a year, and others invest their money in the short term; they sell their shares quickly to take advantage of price fluctuations.
- As everything has its advantages or disadvantages, there is risk in stocks. If the company you invested in doesn't perform well, the stock price can decrease, and investors may lose their money.
- The stock market is unpredictable, and there is no guarantee. You have to face a lot of loss, especially in the short term.
- Always remember to take time to invest in any schemes. It is very important to do research and consult with a financial advisor.
BOND: Bonds are a type of investment where you can give your money to a company or government in exchange for time interest payment, and return may be given when the value mature
- The Government, Municipality, or corporations issue it. When you buy a bond, it represents that you are giving money to the issuer.
- Bonds have an interest rate, which is known as a coupon rate. Which determines how much money you will get from time to time? For example, If you have given $2000 to any company or government & the interest rate/coupon rate is $50 per year. You'll receive a $50 per year interest payment.
- Bond investment is much safer than stock investment because it has a fixed return & it is also safe when you give money to a person who can pay it back, especially in the case of government bonds.
- As the market value of the bond changes based on the interest rates and whether the issuer is trustworthy or not, it matters. If the interest rate rises, the market value of existing bonds may decrease.
- While bonds are safer, it doesn't mean they become risk-free; they also have risk, especially when the issuer is not genuine/ loyal. Also, if inflation rises, the fixed-interest bond payments may lose purchasing power.
FIXED DEPOSIT (FD): the fixed deposit is similar to a special savings account where you can deposit a fixed amount of money into a bank for a specific period, such as six months, one year, and so on.
- During this period, you will earn a guaranteed interest rate on that money, which is unusually higher than a regular savings account.
- You must put a specific amount of money into a bank in a fixed deposit.
- You can decide how long to keep your money locked into a bank. It can be for a few months or several years.
- The bank pays you an interest rate on your money; it can differ according to bank policy. Some give 5%, and some give a 7% interest rate.
- A fixed deposit also has risks, such as a low-interest rate. When you break your FD before the date of maturity, then you need to pay the penalty.
CRYPTOCURRENCY:
Cryptocurrency is a digital currency whose verification and record are stored or maintained in a decentralized system using cryptography (the art of writing and solving codes).
- It is designed to make payment exchanges through a computer network without interference from a central authority (like the government or bank).
- Cryptocurrency like bitcoin, which can be used as an investment, its supply and demand may grow its value.
- If the payment on a huge scale is made using bitcoins, then the value of bitcoin increases, and its value turns the dollar price, so when you purchase one bitcoin at a time.
COMMODITIES: Instead of investing in companies like stocks or leading money like bonds, you invest in raw materials and goods like gold, oil, agricultural products (like wheat or corn..), electricity, or natural gas.
- In previous investment types, stocks and bonds typically pay dividends or interest, but returns come from price appreciation in commodities.
- Here, price changes are based on geopolitical events, weather, and changes in demand. Prices can drop due to unexpected changes in events.
RETIREMENT PLAN: A retirement plan is a type of investment in which people invest money at the time of their working period to provide income and get financial security.
- Retirement plans include 401(k), IRA, and pension. These plans are designed to save your money for retirement years, and you pay them out of your income throughout your life.
- 401(K) is an employer-sponsored retirement plan where employees contribute a portion of their salary to save for retirement auto, automatically deducted by paycheck, making savings easier.
- You can get an individual retirement plan (IRA) if you don't have employer-sponsored plan access. IRA does not need the presence of the employer
MUTUAL FUND: Mutual funds are an investment type where investors unite and pool money to create diverse portfolios with stocks, bonds, and more that professional fund managers manage.
- When you invest in mutual funds, your money combines with another investor interested in investing in similar goals.
- In mutual funds, diversification has an advantage as it invests funds in various assets; it spreads the risk throughout multiple investments.
ANNUITIES: Annuities involve purchasing an insurance policy and receiving periodic payments in returns. This payment may be received after retirement but is usually purchased years in advance. Many people use annuities as a part of their retirement savings plan.
Annuities are worked as contracts that insurance companies or financial institutions offer.
In return, the annuities promise to make regular payments to the person who owns them.
- There are three types of Annuities
- FIXED ANNUITIES:- Provide a guaranteed payment
- VARIABLE ANNUITIES:- Vary based on the performance of investment.
- INDEXED ANNUITIES:- Payments are linked to an equity index
REAL ESTATE: Investing can be done in residential and commercial properties. Real estate refers to land, buildings, apartments, farmhouses, retail, shops, etc.. Purchasing a property is the way to generate income instead of aiming for residence.
The best way to make money is to rent your own house or use the land by constructing farmhouses, shops, buildings, etc., which gives you a return on your investment.
