An investment is when a consumer allocates some of their money into stocks, goods and other assets with the primary financial goal of generating more money in the future.
Consumers can invest their finances in a wide variety of investment types such as real estate, bonds or money market funds. The most common types of financial investments are stocks, bonds, mutual funds and alternative investments, but there are many more investment opportunities available.
Using the right method, consumers can earn enough capital to fund their retirement and other financial objectives. While investing can be a great way for consumers to make a profit using their finances, it is important to learn about the investment opportunities beforehand. All potential investors are encouraged to do some research before investing their money in order to make more educated financial decision.
Out of all the different types of investments, stocks are the most well-known and often the most effective ways to build capital. Also referred to as equities, stocks essentially represent shares of ownership for a business. When a consumer purchases stocks in a company, they are entitled to a portion of the business’ profits and assets or some other form of financial compensation. Investors can choose between two main types of stocks:
Another popular type of investment is a bond, which is basically a loan that an investor makes to a company or institution. In return, the business will typically may investors back with interest. Bonds are often used by corporations and governments in order to fund the cost of operating or expanding certain projects. Investing in a company through bonds is usually a low-risk investment, especially when the bond is made to a financially stable organization. This form of investment is often referred to as a fixed-income investment since the money that investors will receive is based on how much they initially invested.
Mutual funds are great for beginning investors because they offer an introduction into the world of investments. In short, a mutual fund is a portfolio of stock, bonds and other securities funded by money from thousands of different investors. This pool of money from investors can be used to collectively invest in stocks, bonds and other securities known as portfolios. Each mutual fund has a professional fund manager who is responsible for monitoring portfolios and marketing conditions in order to make the most profitable investment decisions with the investor’s pool of funds.
Individual investors who are have little experience or are lacking the time to oversee investments can find many advantages to investing in a mutual fund. Since mutual funds are overseen by a professional and experienced fund manager, individual investors will not need to devote as much time and effort into monitoring portfolios and market conditions to make a sound financial investment. There are three primary categories of mutual funds:
Short-term investments that are easily exchanged into cash amounts are referred to as cash equivalents. These individual investments are usually stable but generate a low return rate. Some examples of cash equivalent investments include:
Any investments that fall out of the definition of traditional investments such as stocks, bonds or cash equivalents are often referred to as alternative investments. Some common types of alternative investments include: