Different investments have different benefits, risks, and potential rewards. What you choose to invest your money in will largely determine your long term investing success. The best approach is to pick investment vehicles that you like, understand, and that suit your overall financial objective.
What do I mean by that? Well, I may invest differently when planning for retirement than to invest to save for a down payment on a house in five years.
Investing In Stocks
Stocks are shares of ownership in a company. When you own shares of stock, you own a piece of that company.
Shares of publicly traded companies are listed on major stock exchanges like the NYSE or the NASDAQ. Much like you go to the grocery store to purchase groceries, you go to a stock exchange to purchase stocks.
You can choose to invest in individual stocks, or invest in a fund of companies. To invest in a fund of companies, you can purchase an exchange-traded-fund or a mutual fund.
Stocks are probably the most well-known type of investing. You can invest in stocks by opening an investment account with a bank or popular investing apps like Robinhood or M1 Finance.
Investing in Bonds
Bonds are loans. If a business needs to raise more capital to grow or fund a project, but they perhaps don't want to sell more shares of their company, they may issue bonds stated at a predetermined interest rate.
You, the investor, can purchase bonds in exchange to receive regular payments on a stated basis from that company. Bonds are generally considered a less risky type of investment due to the steady stream of payments and the stated interest rate.
You can purchase bonds directly through your investment broker, or you can invest in bonds by purchasing an exchange-traded-fund (ETF) that consists of just bonds.
Investing in Real Estate
Real estate is land or property. Because the amount of land or property available in the world is limited, it's value increases as it becomes more scarce (among many other factors determining its value).
Real estate investing has many different approaches. You can buy multiple houses with expectations of their values increasing over time, to later sell them for a profit.
You can purchase multiple houses with plans to rent them out to renters who need a place to live and make money from the residual rental payments.
You can purchase Real Estate Investment Trusts which are companies that pool their investor's money together to invest in many properties for them.
Or, you can invest in land by purchasing chunks of land with plans to hold it for a long time and sell it when its value has increased.
Peer-to-peer Lending As An Investment
Peer to peer lending is another way to invest in loans, similar to a bond. The biggest difference between a bond and a peer to peer loan note is that bonds are generally issued by businesses and government entities, and peer to peer lending notes are loans between investors and borrowers.
In short, peer to peer lending allows investors who have money to lend their money to borrowers who need money.
If I need money to renovate my home, I may go to a peer to peer lending platforms like Prosper or Lending Club to find an investor like you who is willing to lend me that money. Prosper or Lending club will facilitate the transaction and do a lot of the vetting for investors to make sure they know what and who they are investing in.
The investor receives regular loan payments as interest from the borrower until the loan is paid off.
Investing in Small Businesses
Investing in small businesses means using your money to either launch your own money-making business or becoming a shareholder of another private business that needs startup funds. You then own a designated percentage of that business, much like a stock.
Investing in a small business is a riskier form of investment because the entity you are giving your money to might be in its early stages of growth. However, they also have the opportunity to provide a great return.
You can source out small business investments with platforms like NextSeed, Seed Invest, or Micro Ventures.
Investing in Commodities
Investing in commodities means investing in raw materials like oil, gold, silver, copper, natural gas, wheat, etc. If you ask me, this is the most boring form of investing on the planet! Just my opinion, of course. However, commodities have their time and place for many investors.
Commodities get their value from their limited supply while having a high demand for use. The higher the demand, the more people are willing to pay. The less supply available, the higher the price gets raised to sell it to the highest bidder.
The easiest way to invest in commodities is by purchasing shares of an exchange-traded-fund comprised of commodity assets or a mutual fund comprised of commodity assets.
Investing in Cryptocurrency
Cryptocurrency is a digital currency that uses blockchain technology to verify and secure transactions. If that sounds like a different language to you, you're not alone! In short, blockchain technology is very difficult to fool, making it a great option to keep things secure.
Examples are Bitcoin, Ethereum, Litecoin, and Ripple. Each of these are digital currencies used as a means of exchange using blockchain technology.
Cryptocurrency is a risky investment but has grown in popularity. You can invest in cryptocurrency via platforms such as Coinbase or Robinhood.
Insurance Investment Products
Insurance companies offer many investment products that are meant to take risk away from investors and provide them steady growth. Examples of insurance investments are life insurance and annuities.
Cash value life insurance policies provide benefits of life insurance, while also building a cash value which is ownership of the policy death benefit. Much like using a mortgage to purchase a home, each mortgage payment goes towards paying down the loan and gaining equity in your home. Cash value life insurance works the same way.
What makes cash value life insurance attractive to investors is that the cash value portion often grows at a guaranteed rate, like 3% per year, for example. The cash value in the policy can be borrowed against or withdrawn to be used as needed.
Annuities are insurance products that investors put money into with a guarantee of a stated recurring payment for a stated period of time. I may put $100,000 into an annuity because it guarantees it will pay me $10,000 per year for a designated time period.
Annuities are investments because they also have growth aspects in guaranteed growth rates or growth based on the market. It also takes away the risk of losing money during the annuity payout period because the annuity contract will often guarantee it pays a certain amount for a stated timeframe.
What Is The Best Way To Invest?
No one solution fits every situation. Many people are terrified of risk and want to see their money slowly grow, although its growth may be minimal. Others are ok with large swings in value as long as its value keeps growing over the long term.
In my opinion, investing in the stock market is by far the most beneficial way to invest your money. Why? Because the options to invest in individual stocks, ETFs, index funds, mutual funds, etc. provides plenty of ways to customize your portfolio to its objective.
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