Beginner’s guide to investing — Types of investments you should know about
Learning how to invest is kind of like learning a new language, but unlike high school Spanish, your level of mastery affects your financial wellbeing. If you’re looking to start investing, or at least start recognizing the terminology in the morning financial news report, this may be the guide for you.
There are literally thousands of ways you can invest your money, but we’re going to focus on the basics. Read on to learn the main types of investments every beginner should know.
What most people think of when they think “investment,” something you buy that is expected to increase in value. (Your friend’s Kickstarter doesn’t count).
When you buy stock in a company, you’re buying a share in the ownership of that company. You won’t be the kind of owner that gets to boss people around, but you will be entitled to receive a share of the company’s profits … sweet, sweet profits. Stocks can lead to high returns, but with that comes a higher risk.
As you know from years of playing Monopoly, buying property can be a great investment. In the real world, you can buy individual properties like a home or commercial building, or you could purchase a security called a Real Estate Investment Trust (REIT), which is like buying stock in a company that owns the properties that produce income.
The money used to start your own business, or to buy commodities, collectibles and precious metals, are all ownership investments. But don’t start thinking about your big TV as an investment. We’re really only talking about items you buy and intend to resell for a profit, not what you buy for personal enjoyment.
Buying a debt that is expected to be repaid.
When you purchase a bond, you’re really loaning money to a corporate or government entity that agrees to pay back your loan over a set time period with interest. Bonds are relatively low-risk investments, but that comes at the cost of lower returns. Lower risk, lower reward.
Cash Equivalent Investments
Highly liquid (meaning easily converted into cash, not wet) investments that will mature within three months or less. This includes treasury bills, money market funds, short-term government bonds, certificates of deposit and savings accounts.
Cash equivalents offer a stable, albeit low, rate of return. They are strictly for short-term investing, and won’t help with your long-term goals like retirement or buying your own private island.
Investment Funds — Mutual & Index
Numerous investors pool their money together to purchase stocks, bonds and other securities. Each investor retains ownership of his or her own shares, but does not make decisions about how the group’s money is invested. Those decisions are all made by a professional fund manager.
Investors choose funds based on the fund’s goals, fees and risks. You could choose an index fund that tracks the components of a specific market index, like the S&P 500 or a mutual fund made up of bonds. You’ve got a lot of options to choose from. Investment funds are great for beginners, because you can get a diverse portfolio without needing the time or experience to choose individual investments.
401(k)s, IRAs & Retirement Plans
For the latest information on these (or other) investment, ask in the comments below or contact one of our Wealth Management Representatives. They’re ready to help to take your investment skills to the next level.
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