Types of Investment and Their Components

How to invest properly is one of the biggest questions that consumers who are planning to make an investment ask. To invest properly is to put money into the market with the plan of reaping some benefit/cash in return in the near future. Simply put, to invest simply means possessing an asset or something with the objective of making some profit from your investment either on a short term or long term basis. For this, you will need to know some financial advice about how to invest properly.

So, how do you make money out of your investments?

You have to make sure that you are investing in a profitable sector. The profit margin for any investment is the difference between the cost of ownership and what the assets can earn after a specific period of time, usually a year or more. So, if you are looking at making long term investments in equities, it is wise to choose stocks that have a higher rate of profit per share. Short term, higher risk investments like options, commodities, currencies, and commodities like petroleum, are recommended for the inexperienced investors as they involve higher risk in relation to the price.

There are different types of investments that are available for investors who are willing to take risks and earn higher returns in their investments. Amongst these investments are in bonds, mutual funds, stocks, options, gold, silver, commodities, and bonds. Below is a brief description of each of these categories of investments and how it can help you in your investment planning.

Most people invest in stocks and bonds because they offer higher returns. If you are looking at generating income out of your portfolio, investing in stocks and bonds is a safe way of doing so. You will not be taking undue risk if you opt for this type of investment.

Mutual funds are investments that pool together investments from several different investors.

One advantage with mutual funds is that you do not have to purchase all the stocks of a company individually. You make your payment to the fund’s manager, who then distributes your payment among the invested companies. The major benefit with this type of investment is the higher rate of return that one receives on the money he or she invests.

Another category is that of commodity trading.

This involves buying and selling the products of one specific company on a short term basis, usually less than one year. Speculation is involved here since the prices tend to fluctuate according to global economics and market trends. One advantage of investing in commodity markets is that there is no physical storage involved, unlike other investments. However, the returns on commodity markets are lower than those for holding period conventional investments.

Diversification is key

Long term investors are also advised to diversify their investments to take advantage of different risk factors. Diversification is achieved by investing in various asset classes, including equities, bonds, commodities, cash and savings accounts, and specialty areas. As a general rule, it is advisable for investors to open separate retirement account based on the type of investment they are planning to make. This separates long term care and investment expenses.

Each investment has its own returns and drawbacks

Finally, when considering which area to concentrate on, it is important to remember that each asset class has its own returns and drawbacks. It is also important to bear in mind the age of the company. Companies younger than five years experience slower returns. On the other hand, older companies often show better returns. Therefore, it may be beneficial to select one asset class while holding a complementary portfolio of stocks or bonds that offer similar but lower returns.

Opinion writer on 7trade7