What Are The Different Types of Investments
A lot of people get confused by the different types of investments when there’s no need because there are really only a few kinds. Here are some simple ways to explain each one:
Stocks – A stock is buying a “share” of a company. A company may sell 100 shares so each share is worth 1% of the company. Stocks increase in value because
1. the company grows in value, therefore, your 1% is now worth more
2. many stocks give dividends; a dividend is a cash payment for each share you own.
Investors buy shares in the companies they see growing in the future and sell shares with companies who they don’t see growing in the future. Over time, stocks increase in value 6-8%.
Bonds – A bond is a loan to a company. Because it’s a loan, the company must pay you back your money plus interest, just as if you were getting a loan from the bank. Bonds don’t change too much in value, but you make 2% – 10% interest on your money. Bonds are generally considered safer than stocks but stocks generally make more money over the long term. So, you have to decide whether you want to (or can) take risks, or if it’s better for you to be on the safe side.
The US government issues bonds to pay for its expenses – like military, social security – and these bonds are considered very safe…basically, you should always get your money back!
Savings Account – A savings account is with a bank where you keep money and they give you a small return, roughly 1% – 3%.
Mutual Funds – A mutual fund is a collection of stocks. It is safer than buying just one stock because one stock can go way up or way down, but when you have a basket of stocks, some go up and some go down so you get the average. Big companies like Fidelity and Schwab sell mutual funds. These mutual funds can focus on things like just US companies or just high tech companies. Some are also index funds which try to match the overall market.
Real Estate – Investing in real estate can either mean investing in your own home or in other properties. Owning your own home won’t actively bring in new income, but it does allow you options like renting or freeing up income to invest in other rental properties. Paying off your home also gives you peace of mind about never losing your home. Investing in other properties allows you to rent or flip the property, which can give you an additional stream of income or a big return.
Other Types – There are lots of variations on the above…things like Options which give you the right to buy or sell the stock in the future. Or, Exchange Traded Funds which is very similar to an Index Fund.
What Type of Investor Are You?
Investors are generally thought of as either conservative or aggressive. A conservative investor wants to make sure that he or she doesn’t lose any money. Because he or she focuses on not losing money, they take fewer risks. So, a conservative investor is the kind of person who invests more in bonds and savings accounts.
Aggressive investors are as the word says, aggressive. They are willing to take more risks. These kinds of investors tend to have more of their investments in stocks. Recall that stocks can go up or down. Aggressive investors hope that stocks go up over time. High tech stocks like Apple, Google and Amazon have increased significantly over time and most likely will continue to increase more and more in the upcoming years.
Most investors, however, have a blend of both stocks and bonds and other investments.
How Can Qoins Help?
Qoins helps you pay off debt so that you can achieve your financial goals. By paying off the debts you have, you’ll be free to have more money to save in investments which will grow over time. So, it’s good to get started on clearing out your high-interest debt early, so that shortly from now you can be putting money to a cause that will eventually make you extra money in the long run.
If you have any ideas on how to help people start investing let us know in the comments below!