Investment means putting money in an asset that can yield profit in the short, medium, or long term.
For a new investor, it is very important to understand the different types of investments before deciding on an investment type.
A good investment is a vehicle to create wealth for the future.
Investment can be classified under various categories.
1.
According to the risk involved a.
Conservative b.
Moderates c.
Aggressive Conservative investment refers to low-risk investment where investors prefer to put money in interest-bearing savings accounts, the money market, mutual funds, etc.
These investments are long-term investments.
Generally, moderate investments refer to low- or moderate-risk investments in cash, bonds, real estate, etc.
Aggressive investments refer to the high-risk stock trading.
Here, investors have the opportunity to earn wealth in very short term, but also have the risk of losing in the equal proportion.
2.
According to the period in which investments yield returns a.
Short-Term b.
Long-Term Short-term investments naturally refer to the stocks that yield results even in a day.
Long-term investments include bonds, mutual funds, etc.
3.
According to whether it is financial or not a.
Financial b.
Non-Financial Non-financial investment can be made in anything other than the financial instruments in the money market.
This can include real estate.
The increasing price of land and property makes it a viable investment options for investors.
Another option can be investing in gold.
Gold is a precious metal that always yields value for its investors, especially in the volatile market conditions.
Financial investment can be made in various types of financial instruments or securities.
i.
Equities are assets representing the ownership in a company.
They are made available to investors in the stock market or through initial public offerings (IPOs).
They are generally expected to yield good results in the long term.
ii.
Mutual Funds are holdings of stocks managed by fund managers on behalf of the investors.
As a simplified concept, when a company and an individual buy shares of that company together, it is called a mutual fund.
Mutual funds can be bought directly from the fund or from brokers.
While some mutual funds, called managed funds, are managed by investment professionals, others known as non-managed funds are based on an index, such as the Dow Jones Industrial Average.
The profit incurred from non-managed funds depends on the fluctuation of the price in the index.
Mutual funds are always thought to be a good option for small investors who do not have a huge sum of money to invest and yet want to reap the benefits of investment.
It is always a good low-risk, low-gain option for them.
iii.
Bonds are issued by companies, financial institutions, and the government institutions for raising capital.
They carry a low risk and provide good returns.
iv.
Cash equivalents, such as treasury bills and money market funds, are also good and very liquid investment options.
v.
Stocks are high-risk, high-gain investment options for investors in the stock market.
Investors need to have access to various research materials available in the market in order to gain the stock management efficiency and skills.
However, an investor should observe the following while making any financial investment: oOne should always deal with professional advisors and brokers oInvestors should consider their financial situation and goals before taking any decision oOne should also consider the tolerance to risks in the investment oResearch and study of the financial market is a must for preventing losses oAdvice from friends, family, and colleagues for a professional advisor and broker can hold an investor in good stead.