There are four basic types of investment: growth, defensive, and income. Each is different, but they all have one thing in common: they provide income. Growth investments produce high returns, while income-producing assets tend to produce less. Income-producing investments are best suited for beginners, as they don’t require a great deal of knowledge or expertise. They are a good choice if you want to accumulate wealth over time.
Bonds. These investments function as loans to governments or companies. They can decrease in value over time. By contrast, growth investments are designed to increase in value over time and pay dividends or income. Growth investments carry higher risks than defensive investments, but the potential returns are generally higher. This means you need to understand the risks associated with growth investments before investing your money. If you’re looking for a long-term investment, you should consider bonds.
Investments in commodities. Commodities include gold bullion and farm produce. While they don’t deliver as much growth as investments in securities, they can help you balance your portfolio and cushion losses in other investments. In short, commodities are an excellent way to diversify your portfolio and protect your principal against market fluctuations. You’ll find that they’re perfect for investors who are looking to build wealth while staying away from high-risk stocks and bonds.
Cash investments. Cash investments include savings accounts, term deposits, and high-interest bank accounts. While these investments offer steady income and protection, they have a low potential return. But cash investments are still a good way to get a steady income while limiting risks in your investment portfolio. Cash investments have one big drawback: interest payments. Interest rates in banks have reached record lows and don’t show any signs of increasing anytime soon. Cash investors are lucky to earn as much as 2% per year in a basic bank savings account.
Stocks are the most risky of all types of investments, but they also offer the most potential financial rewards. Stocks are the most volatile, and therefore carry the most risk. If you’re looking for a safe place to keep your money, invest in cash or gold. The latter two types of investments are excellent options for long-term investors, but they should be avoided unless you’re a very high-risk person.
Bonds. While stocks are considered a defensive investment, they are risky. They are often bought and sold easily, and have a high risk of capital loss. However, bonds offer relatively low risk and a high potential return. Unlike stocks, bonds don’t pay a dividend; they pay the investor money, which means that they are a good way to get a steady income. The downside is that stocks are risky – you may lose all your money!
Mutual funds are a type of investment that pool money from several investors and invests in a variety of assets. Mutual funds typically track an index of the market. Money managers try to maximize returns, which is the reason why they’re called mutual funds. Mutual funds allow investors to invest in a variety of assets, while the manager handles the details. You can invest directly in a single fund or invest in multiple funds.