4 Basic Types of Investments
Where do I put my money? That’s the most common question everyone asks or even more scary doesn’t ask. Investing your money can seem like a complicated and frightening situation if you are not educated in the field. Well, it’s not as scary as you think. Today you’re going to learn 4 basic types of investments you can make.
Now, before we start, I am no certified or professional investor, but instead am just trying to educate with my personal experiences. I personally have money invested in all 4 types of investments listed below, and I do recommend you have a diverse portfolio (not placing all your money in one specific investment). Remember that there is always different fees and rules in different cities or countries. I will later write a blog about how to balance and break down what your portfolio should look like and also how to get started in each investment type. This is just a quick guide to 4 types of mainstream investments. Another note: you should always do your own research before investing your money.
Let’s start with Stocks! One of the scariest forms of investing, well only if you listen to your neighbor Bob who says stocks are bad because his cousin's brothers friend, lost his house in the market. And while stock investing can be scary you should not be scared to the point that you don’t invest at all. Bob probably has not done any research himself, but rather has listened to all the horror stories of people betting their life savings on risky stocks.
So, what are stocks? Stocks are buying shares of a company. So say an Amazon stock price is $1000 on the market, this means you can buy 1 share for $1000. And some companies pay dividends to their investors each quarter. This meaning the company pays you a percentage of your investment depending on their dividend rate.
1.You can start with any amount of money. Just depends on the company that you want to buy shares from.
2.The stock market has always corrected itself with proven historical data. This means once a correction happens which is 10 percent drop in the market, the average time that drop lasts is 54 days before correcting.
3. The average return is about 7-11 percent on your portfolio
4. You can invest in a variety of companies
1. Nobody knows when the market is going to go up or down (Nobody is a future teller).
2. The stock market can be very volatile, prices fall and rise without much notice.
3. Time: You need to study and learn about companies you are investing in.
Real estate, real estate, real estate. The most commonly talked about investment there is, and the reason for that is that investment properties can be a great investment if you do your homework.
What is real estate? Real estate is "property consisting of land and the buildings on it. So, homes, apartments, complexes, land, any property that is on land is real estate. Simple, right? Now let’s get to the pros and cons.
1. Appreciation: (property typically increases in value over time)
2. Cash flow income: (you can have a stream of positive cash flow coming in with renting out your property)
3. You can leverage money from the bank: (using the bank's capital as a way to buy a property and using renters monthly payment as a way to pay off the mortgage)
1. High down payment: (typically 20% so, on a $200,000 home you would need to put down $20,000 without having to pay some type of extra fee, insurance coverage or rate)
2. The housing market can become oversaturated, bringing the prices down, and as in 2008, the market crashed leaving a lot of people with mortgages they could not pay off.
3. More likely a long-term investment (NOT A BAD THING)
4. You technically owe money to the bank with your mortgage. So you are in debt.
5. Not a liquid asset: (You cannot turn your property into cash easily)
Bonds? WHAT THE HELL ARE BONDS???? Most people have either never heard of bonds, or have heard the term and see it as some type of money talk. Well, bonds are very simple. A bond, or typically known as GIC’s in Canada, is a fixed income investment in which an investor loans money to an entity (generally corporate or governmental: banks, private lender) which borrows the funds for a defined period of time at a variable (interest rate adjusts periodically) or fixed (interest rate is set at one number) interest rate. So, to sum a bond up in simpler terms, you are giving a set amount of money to the bank which is locked up for a period of time you agree to, and at the maturity (end) of that contract, you have gained interest on the money you locked away.
1. Higher interest rates than savings accounts
2. Very safe. No risk at all
3. The longer and larger amount of money you invest, the banks typically give you a higher interest rate
1. If you are having a portfolio manager control your investments, look out for fees.
2. Your money is locked away for the period of time you agreed to. Typically 1, 2, 5-year terms. You can decide to pull it out, but some fees may apply, and you will not get the interest you would have gained at the end of the contract.
Now I don’t even think people typically think of a savings account as an investment. Well, it actually is as you are gaining interest on it. Everyone starts out with a savings account and chequing account, and a savings account is precisely what the title suggests. Savings. A simple concept and a straightforward account just for saving money.
1. No risk at all
2. Good for a place to keep an emergency fund
1. Very low interest rates: (lowest return rates of any investment) A TD savings account has an interest rate of 0.05%. Yes, you read that right
There you have it. 4 basic type of investments. And like I said before we started, always do your own research before investing your money, but this is just a quick guide to let you know that you can grow your money in different ways. Don’t let your money sit there but rather have it returning gains by placing it in the right avenues and allowing it do the work for you. I hope this made you think differently in ways you can grow your wealth and remember, you get to create the life you want, and you get to create your own happiness.