Investing is known as the best way to grow your wealth over time, and it’s easier than ever to make investments today with more options and tools for those who are looking to get started. However, many people are not sure where to start, and deciding on the best investments to make can often be overwhelming and even confusing due to the large number of investment options that are available. Whether you want to save for your retirement or just enjoy more financial freedom, choosing the right investments for your portfolio will make all the difference when it comes to your financial success.
To help make it easier for you to decide which type of investment will be the best option for you, let’s take a look at some of the most popular investment types, how they work, and who they might be a good choice for.
Stocks might be the first kind of investment that comes to mind when you think about investing. They are often viewed as the simplest investment type, can have high returns, and are very well-known. Purchasing stock refers to buying a share of ownership in a certain public company, and there are thousands of different publicly traded companies for you to choose from when getting started.
The idea behind purchasing stocks is that you do so in the hope that the price will rise in the future. As a result, you can sell your share of ownership in the company for more than you paid for it and make a profit. However, bear in mind that the market will not always go in the direction that you want, and there is always going to be a risk that your share of ownership might decrease, rather than an increase in value.
Bonds are another well-known and popular investment option that many people will have learned something about. Typically, the returns from bonds are quite low so they are a great option for anybody who wants to add some safer diversity to their portfolio, protect their current wealth, or has a very low tolerance for risk. When you invest in a bond, you will be lending money to an organization or government body, and earning money on the interest that is paid. Corporate bonds involve lending to companies while municipal bonds involve lending to governments. The bond matures after a certain period, and you will earn back the amount that you lent plus an interest rate.
Mutual funds involve money that comes from several different investors and is invested in many different companies. There are two ways that a mutual fund can be managed; active and passive. Actively managed funds will have a fund manager who chooses the companies that are to be invested in, and it is their responsibility to select the investments that are most likely to see a value increase. On the other hand, a mutual fund that is managed passively doesn’t have a fund manager but will track major stock market indexes.
Exchange Traded Funds (ETF)
Exchange-traded funds work in a similar way to mutual funds and involve a collection of investors and investments that track a certain index. ETFs are bought and sold on the stock market, however, unlike mutual funds that are purchased through companies. The price of an ETF will typically fluctuate on any given trading day, which is different from mutual funds since they are calculated as the net value of all investments. There are several different types of ETFs to consider, including Bitcoin ETFs for anybody who is interested in cryptocurrency. However, these do tend to work slightly differently as, rather than investing in Bitcoin directly, it is an investment into money that is actively investing in Bitcoin.
You can learn more about how this works with the Wealthsimple bitcoin ETF. This will enable you to learn more about getting started with investing in ETFs, why a Bitcoin ETF might be the best choice for you, or how to invest in Bitcoin on its own.
Investing in options is an alternative way to invest in stocks. Purchasing an option involves buying the ability to either buy or sell an asset at a specific price at a specific time. There are both call and put options to invest in; call options involve buying the assets while put options involve selling them. This trading technique is quite advanced, so it is not normally recommended for beginner traders. If you are interested in diversifying your portfolio by investing in options, it’s worth getting professional advice and spending plenty of time to make sure that you fully understand how it works first.
Despite being a fairly new investment option on the scene right now, cryptocurrencies are one of the fastest-growing. Cryptos such as Bitcoin is a popular investment option among young people in particular who have rejected traditional investment types such as stocks and bonds and believe that digital currency is the future. Bitcoin is the most popular, well-known cryptocurrency that most of us will have heard about before now, but there are hundreds of different altcoins that you can invest in to. And, investing in cryptocurrency is an easy process since all you will need to do is sign up to a trusted cryptocurrency exchange where you can choose what you want to buy. The best part for beginners is that you can purchase a fraction of one coin at a time, so there’s no need to pay the full value for one BTC – just purchase a small amount of it for a price you can afford.
The Forex, or foreign exchange market is another currency investment type that is among the most traded markets around the world. Over the past few years, Forex trading has become more and more popular. It involves purchasing a currency while selling another at the same time, and Forex traders consider the future direction that a certain pair of currencies might take in order to increase their chance of making a profit. However, it might not be the best investment option for you if you have a low tolerance for risk, since the fact that currency values can drop suddenly due to world events can make it quite a risky option.
Certificates of Deposit
A certificate of deposit or CD is an investment type worth considering if you are looking for something low-risk. It involves giving a certain amount of money to the bank over an agreed period of time and having the amount of money plus interest paid back to you once that period is over. They work in a very similar way to bonds, other than the fact that you are dealing with banks rather than governments or companies. The level of risk involved is even lower when you consider that you are covered by insurance and regulations even if the bank collapses.
Investing in commodities involves purchasing physical products, and there are several different options to consider including precious metals like gold and silver, energy products like solar power, oil and coal, and agricultural products. If you want to diversify your portfolio and expand the range of investments that you make, commodities are often a popular option since they are generally considered to be relatively low-risk depending on which one you purchase. However, bear in mind that some products are higher-risk than others due to the fact that their value can be affected very quickly by political and global events.
If you want to use investments to grow your savings for retirement, annuities are a popular choice. Investing in annuities involves buying a contract with an insurance company, who will pay you periodically in return. The payments can either begin straight away, or will start on a set date in the future depending on the type of contract that you buy. These agreements might last for a certain period, while others are lifetime. Higher rates of interest can be earned on contracts that last for longer. However, since this is a slow-growth investment, it’s often a better option for portfolio diversification.
Finally, investing in property can be one of the best ways to grow your wealth over time. Whether you decide to sell your real estate or rent it out to earn a passive income, the property is one of the best investments to make whether you are just starting out and have a lot of money to invest or want to diversify your investment portfolio with a safer option. The property might be different from the other investments listed here but, with the market on the rise in many places around the world, the opportunity to earn a profit after owning a property for some time can be very high.
If you’ve decided that you want to start making your money work harder for you by investing it, choosing where the wisest option for spending it might be can often be daunting. Understanding how the most common investment types work will help you pick the most suitable one.