Wealth is one of the essentials of life that everybody wishes to have. We all work day in day out and try different ways to ensure we walk our path towards a life full of wealth and prosperity. Among all these ways, investment is one the most effective to build immense wealth. While you’re busy with the daily grind, whether your 9-5 job, skills offered to the market or your business and make some income, it’s best if you can allow your money to work for you, compound and multiply. This is what is called investment. There are different types of investment, and each type consists of several options you can opt for. This makes it difficult for people to decide which one to invest in. Every investment has its own advantages and disadvantages. The one you should choose will be based on your personality. Are you someone who loves to take risks? How long can you wait to get the return on your investment? And what’s your investment objective? Why do you want to invest in the first place? All these questions, when answered well, are what will determine the kind of investment that suits and is most likely to work best for you.
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The truth is almost every good thing in life involves risk and patience before you get rewarded, and investment is not an exception. So, it’s not a get rich quick thing to do. In fact, you’ll have to pass through the bubbles and hurdles of rising and falling prices if you want the most profitable investment as it’s beneficial and rewarding in the long term. Any investment that assures a huge reward with little or no risk is most likely unrealistic. Maybe you’ve always wanted to build your wealth by investing your money, but you don’t know which one to go for; below are seven types of investments explained in detail. We hope by the end, you’ll be able to know the one that suits you so that you can go for it and enjoy the money blessings of an investor.
Bonds are fractionated loans given to a government or company. It’s a way by which a company or government raises money to fund their projects. What do we mean? Suppose the government of a country wants to establish a beneficial project in their country and they don’t have enough funds to get it done, the most likely way out is for them to borrow money from a bank or some other source. One of the ways they can get money is by borrowing from the public. However, if the money is affordable for a single entity, the government would have been able to afford it themselves.
Since it might be difficult to get a single entity that will lend them that huge amount, they come up with a strategy and divide the huge amount into smaller pieces. Let’s say the money is 10 million dollars. Instead of looking for one person that will lend the government 10 million dollars, which might not be easy, they can divide the money into small 100000 pieces. Right now, each fraction will cost $100, which will be easier for the average man in the public to purchase. Each fraction of this money borrowed by the government or company is called a bond. But, why on earth would anyone want to lend a company or government the hard-earned money that they can use for other things? It’s because there are benefits in the form of a fixed interest paid on every bond purchased. This interest is also called the coupon rate. Bonds have different names. The one from a company, United Kingdom and the United States government is called cooperate, gilt, and treasury bond respectively. The people with one or more bonds are called bondholders, and the period of time required before the full amount of a bond is paid back to bondholders is referred to as the maturity period. How will someone who wants to invest in a bond from a company or the government make the purchase? Bonds, like stock and shares, have a market where they are sold and purchased by investors. And like every market, the rise and fall in the market price of a bond are determined by the level of demand and supply. There are many factors that affect the demand and supply and, eventually, the price of every bond in the marketplace. When the maturity of a bond is long, the bond will have more sensitivity towards changes in price due to changes in interest rate. One of the risks with bonds is what is called “default risk”. It’s the situation where the issuer of bonds fails to pay the bond investor when the bond reaches maturity. Government bonds are usually with a low-interest rate, which makes it easier and possible for them to pay back their investors. But company bonds are with more risk as the company can go bankrupt, which means that investors are going to lose out. This is why bonds issued by companies usually have a greater interest rate. It seems the general rule still holds; the greater the risk, the greater the return and vice versa. Another risk with bonds is the interest rate risk. This happens when the interest rate of other bonds rises. This will shift demand to the bond with a higher interest rate and cause the bond in your possession to be worthless on the market if sold before maturity. Bonds are usually seen to be a lesser risk form of stock and shares and are usually used in portfolio diversification. The difference between bonds and stock is that stockholders are eligible for the profit made by the company in the form of dividends and also have a say in their management which doesn’t hold for bonds. The only gain from bonds is the annual interest paid until the bond reaches maturity.
Stocks And Shares
Stock are securities that give you the eligibility of being one of the sectional owners of a company. They’re also called shares or equities. When you purchase the stock of a particular company, you have owned a portion of that company, and you will be entitled to several benefits of a company owner. You’ll be entitled to the profit made by the company in the form of a dividend, and suppose the company gets sold; you’ll have your share of the money. Another benefit you will get is participation in decision making through voting. Stocks have a marketplace where all companies can place their stock for interested investors to purchase. Companies can trade their stocks publicly or privately. The public stocks can be found on the general market where every investor can have access to them, which makes it easy to purchase and sell with the help of a broker. Privately traded stocks are also referred to as unlisted stocks because they’re not listed on the stock market, which makes their transaction more difficult than listed stocks. The price of stocks is also affected by the demand and supply of the stock on the marketplace. Factors that determine the rise and fall in demand and supply are company performance, news etc. When a stock listed on the market is performing excellently, more investors will want to purchase the stock. This will raise the demand against the limited supply and lead to the rise in the price of that stock and vice versa. This also happens when there’s news that makes people expect a company to do well or perform poorly. Apart from the direct purchase of individual stocks, there are funds that invest in different stocks on behalf of their investors. You can buy any of these funds to save yourself the complexity of researching stocks, especially if you’re a beginner. Generally, stock investment has been seen as the best investment for wealth building in the long term.
This is based on the speculation of changes in the economic strength of one country against the other. When some companies, financial institutions, or even individuals perceive that the value of a particular currency will drop or rise in value, they take advantage of the situation to invest and sell a currency when the value rises to make a profit. Some of the currencies traded are pounds, yen, euros and US dollars. The purchase and selling of currencies are made on the foreign exchange market through a brokerage. The rise and fall in the value of currencies can be volatile, so it’s necessary that you have a detailed understanding of the system before you dive in. And if you don’t have the expertise, you may need to hire one. It’s good in that you can use it to diversify your portfolio, and you can trade twenty-four seven.
Commodities are raw materials that can be consumed directly or used to produce consumable finished products. When you eat fruits, wheat, rice, broccoli, orange, and use shoes, gold and silver jewellery, you’re consuming nothing but commodities. They’re usually in different types, forms, and sizes. Like other forms of investments, major commodities have a market where they’re bought and sold, and their prices rise and fall based on the demand and supply relationship. Commodities have a volatile price, which makes them difficult to predict. Some commodities are seasonal, which means that they’re ample at some times and become scarce at another period of the season. This will lead to heavy changes in price from between seasons. Price fluctuation also happens when a commodity becomes scarce or is only gotten from a specific region in the world. The length of time for the rise and fall of commodities are always long. It can fall for many years and rise for the same period. With commodities, the return on investment is probably greater than what you will get with bonds. But, due to the high level of volatility involved, you need to have deep experience and knowledge to get the best return, which is why it’s not advisable for startup investors.
Arts And Collectibles
This is one of the most underrated assets by the majority of the people. However, it’s a worthy investment. Arts and collectables include old comic books, cards, stamps, wines and majorly paintings. They’re simply any items that are valuable to people. You may want to ask why anyone will want to purchase these items. It’s due to the fact that they’re unique and not readily available. And whenever anything is scarce, it becomes more valuable as the demand will be way more than supply, and as a result, it’ll have a big price tag. They have many pros and cons. Like other investments, It’s not easy to determine the future price of these arts and collectables, which means that you cannot estimate the return on your investment. Another cons is the fact that you’ll need a huge amount of money to invest in arts as most of them have huge price tags. Therefore it might not be an excellent option for investors who are just beginning. But if you understand how it works, it will surely bring a good return on investment in the long run.
Unlike before, the present generation has been blessed with a new type of investment. This investment is called cryptocurrency. It involves digital currencies like bitcoin, ethereum and others, that are built on blockchain technology. The digital currencies are partially anonymous as they’re not issued by any government nor controlled by any financial institution. The first currency to exist is bitcoin which was launched in 2009 by an anonymous person. Since then, many other currencies have been launched and are still launching to date. At first, people are sceptical about the rise of these currencies. But now, more and more people and countries are embracing them. Some people believe that these cryptocurrencies have come to stay and will become valuable in years to come, while others see it as just an illusion that will soon disappear into the air. The one that is right among these opinions cannot be determined now until it all happens. But these currencies, especially the pioneer, which is bitcoin, have appreciated in value today that a single bitcoin is now worth thousands of dollars. This is due to the scarcity involved. The creator of bitcoin has made it in such a way that there will be a limited amount of it throughout the world. This will make the demand for this currency over time to be more than the supply and therefore cause the value and price attached to it to rise immensely. And as a result, it has climbed its way to the asset class. Many people now buy bitcoin and other cryptocurrencies to sell in the future when the price value increases. Therefore, there is now a crypto market where people buy and sell different kinds of cryptocurrencies. Because it’s a technology-based form of investment, many people don’t understand the concept behind it. If you’re also a fan of these currencies and believe that they have come to stay, it might be a good opportunity to leverage. However, like any other investment, it’s important that you invest in your education about them before you jump in so that you will not lose out. This is because these currencies have a major characteristic of high volatility, which means they can make you rich overnight, the same way they can put you in debt overnight.
This is the last type of investment we have for you. Property is one of the well-known forms of investment people have used from time to time and is still working till this moment. There are different kinds of properties that serve as an asset. Some of them are commercial — such as offices, shops, industrial and government buildings — and residential properties. They’re often referred to as real estate investment, and each category has its ample return on investment and risks. Once you own any of these properties, you can lease it for people as rent based on agreed terms while you receive your rental payment as agreed. The value of a property is determined by different factors. However, one of the major determinants is the level of perceived attractiveness and the location of the property. Investment in properties is lucrative in that you can borrow money to invest while you cover up the interest with the rental payment and make your full profit when you sell. This makes it difficult to compare the reward of properties with other investments. Borrowing money to buy properties can be risky if the price of the property falls or issues of property damage arise where you’ll have to get them repaired. If you understand in detail, property investment has always been one of the good investments you can leverage.
Which Should You Invest In?
Now that you know the different kinds of investments available, the probable question is which one should you invest in. The answer to this depends on you. There are many factors to consider, starting from the volatility in price, tax effectiveness, and your knowledge. When selecting investments, you should consider the one that suits your goals, needs and expertise. And if you don’t have prior knowledge of any, it’s high time you learn one so that you can begin investing in building your wealth.
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Recommended for further reading:
- How to Make Money in Stocks: A Winning System In Good Times And Bad
- The Barefoot Investor: The Only Money Guide You’ll Ever Need
- Stock Market Investing For Beginners: The Investment Guide
- Secrets Of The Millionaire Mind – Harv Eker
- Think and Grow Rich! – Napoleon Hill
- Money Master the Game: 7 Simple Steps to Financial Freedom