The Three Basic Types of Investments That You Need to Know
Investments could mean various things for different people. It could mean stocks for the traders, owning a house for a young family, or paying for their life insurance to others. No matter what it means for people, it has, nevertheless, one meaning: something that should give you a return or gain you a profit.
The Financial Industry Regulatory Authority (FINRA) defines investment as “tools that can help you achieve your financial goals.” In their website, they’ve categorized the types of investments into 12 categories namely Bank Products, Bonds, Stocks, Investment Funds, Annuities, Saving for College, Retirement, Options, Commodity Futures, Security Futures, Alternative and Complex Products, and Insurance. While this could be the official way to categorize the types of investments, there is another way that is easier to remember.
Investopedia grouped the types of investments in three basic categories which we will break down for you here. Take notes and see what investment suits you.
Ownership Investments
These type of investments are the most common kind and the closest definition of the word investment. These are the stocks, business, real estate, and precious objects. Identifying them is pretty simple. If it’s something that you invest money in that will give you a return for owning it, it’s an ownership investment.
Having stocks mean that you own a portion of a company. The return you get is the dividends given by the company. Meanwhile, having your own business means that you own that company and you invested money to help it start out. You return is the profits gained. Real Estate, on the other hand, is the place where people live in. It is an investment because most of the time, real estate increases in value over time. This means that your investment gave you a return of investment in terms of added value.
Lending Investments
It might not be obvious but almost everyone has a lending investment. This is because simply opening a bank account means that you are getting a lending investment. You are an investor when you save up because money is invested and you get a return in the form of interest. This is a form of lending because the bank uses your money to run their business. There are two kinds of lending investments: bank accounts and bonds.
Cash Equivalents
The last type of investment that you need to know are cash equivalents. Cash equivalents are called as such because they’re basically as good as cash. These are the money market funds. Here, when you invest, you get a return of 1% to 2%. It’s an investment that few people have but it’s also one of the most lucrative if you play your cards right.
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