Here are 6 Various Types of Investments you Should Know About

Financial experts say one way to grow wealth and retire early is by investing and diversifying your investment portfolios.

However, before you invest, it’s crucial to understand investments and the different types. This knowledge helps you decide on the best investment type that fits your personality and income.

In this article, we discuss the six most common types of investments you should know:

1. Stocks

Stocks are like buying a piece of a company - having a share in its assets and earnings. Many companies open their stocks to the public so people can be a part of their stock market and profit from it, e.g., buying a share of Netflix stock.

These stocks can be bought and sold among investors. One advantage of this investment is that you earn high returns when the company makes a profit.

2. Bonds

A bond is like loaning money to an organization or the government, and they pay it back with interest. It is a promise by a borrower (government) to pay you (the lender) your principal and interest on a loan. They are considered less risky than other investments, but they generally have low return rates.

3. Mutual Funds

Mutual funds allow investors to buy many investments in one transaction. These funds pool money from many investors and employ a professional manager to invest that money in stocks, bonds or other assets.

It’s best for people who don’t like the idea of choosing individual stocks. Equal earnings are shared among the various investors, and funds increase as the value increases.

4. Index Funds

This is a type of mutual fund that tracks a market index passively. It doesn’t require the supervision of a professional manager. Index funds are a portfolio of stocks or bonds that imitate the composition and performance of a financial market index.

For instance, S&P 500 index fund will imitate the performance of the S&P 500 by holding the stock of the companies within that index. One advantage of index funds is that they are less risky compared to other individual stocks.

5. Exchange-Traded Funds (ETFs)

ETFs are a type of index funds that track a benchmark index and imitate the index’s performance. Like index funds, they are also cheaper than mutual funds because they are not actively managed.

6. Real Estate

Unlike the above, real estate doesn’t involve stock market charts. It is also lucrative if done right. One of the quickest ways to invest and make money in real estate is to become the landlord or owner of a rented property.

They are also other kinds of investment opportunities like Cryptocurrencies, Forex, Certificate of Deposit (CDs), Cash, Fixed interest etc.

Understanding what works for you is the first step to take as a beginner investor. Among other things, think of how much you earn, how much you can set aside, your risk tolerance, and your investment goal.

However, before you purchase an investment, do these two things:

1. Contact a financial advisor/Have financial education

It is not advisable to start investing on your own when you have no clue what you're doing. Save yourself from huge losses by talking to a financial advisor about your investment plan. They will analyze your risks and determine if you are a low-risk or high-risk investor. You can find a financial advisor in your local bank. An alternative is to find a trusted online source on personal finance education.

2. Look deep into your financial state

Investments are typically for people with money to spare, no matter how little. So think about your financial situation before deciding on a plan. For example, avoid going into an investment if you have a backlog of debts and bills to pay. Instead, invest when you have a clear head.

There are a ton of investment opportunities to choose from. You just need to know their differences and weigh the pros and cons, risks and rewards. The good thing about investments is you can work your way from a beginner to an expert with the right amount of dedication and knowledge.

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Source: Legit.ng