Types of Investments and How to Make Them Work ~ InvestingPR.com InvestingPR.com

Types of Investments and How to Make Them Work

You may have big plans to improve your financial future over the years. You may also be aware that saving and investing money is critical to achieving this goal. Perhaps you have already saved a substantial amount of money in a rainy day savings account. You are now ready to purchase investments with your surplus cash. However, there are many types of investments that you can purchase. Therefore, you will need a better understanding of each of the more common investment options available before you decide how to allocate your funds now and in the future.

What Types of Investments Are There?

When you compare the different types of investments available, you must understand how they can help you to grow your money quicker over time. Each investment type has pros and cons as well as the potential for risks and rewards. Savvy investors will use a combination of these different investment options. They want to create a balanced portfolio that mitigates risk and maximizes reward. As you explore some of the many investment options available to you, these are the most common options many people will invest in.

1. Stocks

Stocks are shares of ownership in a company in issue by a publicly-traded firm. All stocks can increase or decrease in value. Fluctuations in price are common throughout the day. You will typically make money on stocks when you buy them at a lower price and sell them at a higher price. Until you sell a stock, you have not locked in your gain.

Some stocks produce dividends, which are a regular payout from the profit of the company. A reasonably dividend is between two to four percent per year.

Some people buy and sell stocks frequently to make money on value increases. Others hold stocks long-term to provide from dividend gains. Keep in mind that the dividend income can also be re-invested into your stock account to purchase additional shares.

You should purchase stocks via a broker. You may be able to open a stock account with a very small initial investment. Make additional stock purchases as you will. It is possible to buy partial shares of stock.

2. Mutual Funds

As you might imagine, the volatility in the stock market and economic uncertainty creates risk for stock investors. When you compare types of investments, mutual funds are a popular option that are seen as less risky than stocks.

Mutual funds are professionally-managed by savvy financial experts. They pool funds from a group of investors to purchase a group of stocks. Because of this structure, fund prices can go up and down. However, you may find that most mutual funds are not quite as volatile as stocks are. Because of this, it is more common for mutual funds to be purchased for long-term growth and gain.

To buy mutual funds, you often need to have a brokerage account. You can use the same brokerage account to purchase mutual funds as you use to purchase stocks.

3. CDs and Bonds

CDs and bonds are safer types of investments that you can purchase from your bank or any other financial institution. They typically have a very low yield and a maturity date. However, there is minimal to no risk of financial loss when you invest in CDs and bonds.

Many investors will have a low mix of CDs and bonds in their younger years because of the low yield. However, as they approach retirement, many older adults are more averse to risk. They often increase their holdings in this safe type of investment as they approach retirement age so that there is less risk of their portfolio losing value.

4. Commodities

Commodities are not as popular when comparing types of investments. But they are nonetheless important to consider. These are investments in basic goods, such as oil, cotton, sugar, corn, iron, gold, silver and more.

Because these are staple items, they often are less volatile in price. However, everything from economic policy to Mother Nature can affect their price. Metals, such as gold and silver, are often selected because they offer a hedge against inflation.

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5. Real Estate

Many of the wealthiest individuals in the world hold considerable real estate investments. This is a testament to how solid this type of investment may be. Real estate includes land, single family homes, multi-family communities, office building, retail buildings and more.

Many people will purchase their primary residence, and their goal is to pay off the mortgage and to live with minimal housing costs in retirement. You can also purchase real estate for the purpose of leasing it out and producing a regular income stream from it.

A professional property manage can be hired to deal with tenant issues adn property maintenance for a reasonable fee. Property values may go up and down, but they tend to increase rather substantially over the long-term. This means that your properties could provide monthly rental income as well as a long-term gain in value. They also have tax deductions that are not available with other types of investments. These tax deductions add to the considerable benefit that real estate investments provide.

6. Annuities

If you are looking for a great way to produce a reliable stream of income from your investments, purchasing an annuity is a thoughtful option to consider. There are a wide range of annuity investments that you can purchase.

You may be able to buy the annuity slowly over time by paying into it over a series of years. Otherwise, you may be able to pay a lump sum amount to buy the annuity. Then, you can set up annuity payments on a monthly or quarterly basis or on another schedule. The payments may provide you with income for a specified number of years or for the rest of your life.

7. Life Insurance

There are two main types of life insurance, and these are term and whole life policies. Term policies have an expiration date. Whole life policies may remain in place throughout your life. Both will pay death benefits to beneficiaries when you pass away.

However, whole life policies are uniquely considered to be a financial asset or investment because they can accumulate cash value with each premium payment you make. This cash value amount typically will accrue interest as well. This makes it a reliable investment option that you can draw cash from as needed in the future.

It typically produces greater interest than a savings account, but it often is not a very lucrative investment. The value will not decrease in most cases, so there is no real risk associated with this type of investment.

As you can see, there are many different types of investments that you can choose to purchase. These are only the most common options to consider, and you have other options to explore as well. When deciding which types of investments to purchase, think about whether you want short-term or long-term gain, growth, reliable income or other benefits from your investments. This will help you to determine the best investments to purchase for your financial benefit in the future.

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