Wise investors know not to blindly put all their eggs in one basket. Instead, they become familiar with a few different types of investments and use their knowledge of each to make money in different ways.
When it comes to investing, there https://hyundaisemarang.id/ are a lot of baskets to choose from. BUT, it’s important to understand all your options before you actually invest your money and start to build your portfolio.
Every type of investment has its upside and downside. The best types of investments to make depend on your risk tolerance, level of understanding of certain markets, timeline to avoid capital gains, and reasons for investing in the first place.
Among the different types of investments out there, there are probably a few that will work well for you so let’s get into it.
Cash and Commodities
Cash and commodities are typically considered low-risk types of investments, so if you’re new to investing or are very uncomfortably with any risk, one of these options could be a good place to start. Keep in mind that low-risk investments also tend to have low returns.
1. Gold
Yes, you can invest in gold and other commodities such as silver or crude oil. In fact, the practice of investing in gold goes way back, but that doesn’t necessarily mean it’s a great investment. Gold is a commodity, so its price is based on scarcity and fear, which can be impacted by political actions or environmental changes.
If you are investing in gold, be aware that your “moat” (protection against a price drop), is based on external factors – so the price can fluctuate a lot, and quickly. The price tends to go up when scarcity and fear are abundant and down when gold is widely available.
If you think the world is going to be a more fearful place in the future, then gold could be a good investment for you.
Key Takeaway: The thing to remember is that betting on commodities such as gold is usually just that — betting. It’s not Rule #1 Investing unless you KNOW that scarcity is going to create a demand for gold and drive up the price.
2. Bank Products and CDs
Bank products are investment types offered by banks that include savings accounts and money market accounts. Money market accounts are similar to savings accounts, but typically earn higher interest rates in return for higher balance requirements.
A CD, or certificate of deposit, is another type of bank product. When you purchase a CD you agree to loan the bank an amount of money for a designated amount of time in order to earn a higher amount of interest on it than you would in a typical savings account.
CDs are an extremely low-risk investment – but with low risk, comes low reward. Most banks offer CDs at a return of less than 2% per year, which is not even enough to keep up with inflation.
Key Takeaway: Don’t waste your time on CDs. While they can be a safe place to save your money and get a little more interest than you would in a savings account, they aren’t a great place to grow your money.
3. Cryptocurrency
Cryptocurrencies are one of the newer types of investment. They are unregulated digital currencies bought and sold on cryptocurrency websites.
Cryptocurrencies, such as Bitcoin or Dogecoin, have gained a lot of interest in recent years as an investment vehicle due to their quick and dramatic growth. However, they remain an incredibly risky investment because of the many unknown factors associated with them.
There is the possibility of government regulation and the possibility that cryptocurrency will never see widespread acceptance as a form of payment. Cryptocurrency currently has no intrinsic value and it could disappear as quickly as it came into existence.
Bonds and Securities
Bonds and securities are other types of low-risk investments. Bonds can be purchased from the US government, state and city governments, or from individual companies.
Mortgage-backed securities are a type of bond that is typically issued by an agency of the U.S. government, but can also be issued by a private firm.
4. U.S. Savings Bonds & Corporate Bonds
When you purchase any kind of bond, you are loaning money to the entity you purchase it from for a predetermined amount of time and interest.
Bonds are considered safe and low risk because the only chance of not getting your money back is if the issuer defaults. U.S. saving bonds are bonds backed by the U.S. government, which makes them almost risk-free.
Governments issue bonds to raise money for projects and operations, and the same is true for corporations who issue bonds.
Corporate bonds are slightly more risky than government bonds because there’s more risk of a corporation defaulting on the loan. Unlike when you invest in a corporation by purchasing its stock, purchasing a corporate bond does not give you any ownership in that company.
5. Mortgage-Backed Securities
When you purchase a mortgage-backed security, you are once-again lending money to a bank or government institution, but your loan is backed by a pool of home and other real estate mortgages.
Unlike other bonds, which pay the principal at the end of the bond term, mortgage-backed securities pay out interest and principal to investors monthly.
Key Takeaway: While they can be a type of income investment that provides steady returns, mortgage-backed securities are one of the more complex investment types, and so should be avoided by beginner investors.
Investment Funds
Investment funds are made up of a pool of money collected from multiple investors that are then invested into many different things including, stocks, bonds, and other assets. The collection of investments typically tracks a market index.