The 5 Most Common Types of Investments Everyone Should Know


investment

Whether you’re earning $1,000 or $10,000 a month, it’s always a good idea to invest some of your money.

It’s a widely-known fact the almost all of the super-rich invest their money somewhere, and most self-made millionaires have some sort of investments to supplement their income.

On the other hand, the reason why so many people are forced to work well into their retirement age is because they do not have any investments that supply them with passive income.

Hence, they only live pay check to pay check.

So whenever they’re unable to work, they wouldn’t have enough money for that week or month.

There are almost limitless options for you to invest in, and here’re the top 5.

It’s always recommended that you learn the basics about your investments before using actual money.

1. Stocks

Stock

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By investing in stocks (or equity shares), you’re actually buying a part of a company.

This makes you one of the owners of the company, and you’ll have the right to the company’s profits.

There are two ways that you can make money by investing into stocks: capital gain and dividends.

Stock prices fluctuate all the time.

If you manage to buy a particular stock at a low price and sell it for a high price, you can sell it for a profit.

This profit is your capital gain on investment.

When your company makes a profit, they would usually choose to retain some of it and distribute the rest to shareholders.

And as a shareholder yourself, you’ll get some of this profit.

This is known as dividends.

It’s a form of passive income, and you can take the cash out, or use it to buy more shares.

2. Bonds

Bonds (or debentures) are actually loans you make to a company.

As a debenture holder, you’re entitled to a fixed rate of interest every year, regardless of how much profit or loss a company makes.

This makes bonds a safer option than stocks, although the returns may be lower during “good” years.

Similar to stocks, you can sell the bonds for a higher price than you paid for, thereby making a capital gain.

Some types of bonds (called convertible bonds/debentures) can be converted into company stocks after a period of time, thereby making it more attractive to some investors.

 3. Real Estate Investment Trusts (REITs)

real estate

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If you’re interested in real estate investment, but you don’t have the capital to invest in the entire property, then you may consider investing into REITs instead.

A REIT is a security that is traded on the stock exchange.

REITs, as the name suggests, invests mainly in real estate.

When you invest into REITs, a team would use that capital to buy other property.

Similar to stocks, there are two ways you can receive income.

Whenever the REITs collect rent from tenants, the income is distributed to all shareholders.

The REITs also make a capital gain when they sell property that has appreciated in value.

 4. Mutual Funds

A mutual fund is a collection of funds of many investors.

This fund is managed by a professional money manager, and invests it into other stocks, bonds, etc.

One of the biggest advantage of a mutual fund is that is allows starters with very small capital to invest in a diversified portfolio, which would be almost impossible if he were to do it himself.

Most mutual funds invest into stocks or bonds, or a combination of both.

Some mutual funds also invest into the money market, and they usually make very short-term investment decisions.

You’ll make money almost the same way as personally investing into stocks or bonds on your own, less expenses.

 5. Exchange Traded Funds (ETF)

You can see an ETF as sort of a combination of stocks and mutual funds.

Like stocks, they are traded freely on the stock exchange, and like mutual funds, they are actually a collection of a bundle of stocks.

Most people buy ETFs because of the level of diversification they offer.

An ETF will track or replicate the stocks that they own, and they are passively managed.

Hence, there are substantially less costs associated with ETFs as compared to mutual funds.

What other types of investment that you invest in?

Share with us in the comments below!

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Shawn Lee

Shawn is a writer for WealthMastery.sg. When he's not writing, he enjoys reading about the latest in psychology and personal development. Beneath his reserved demeanour, he's secretly a fanboy who goes crazy whenever he sees his favourite idols. He also loves anime, music and everything Japanese.