Investing. It is a term that scares the hell out of a lot of people. Even for those of us in the personal finance blogosphere, the mere mention of the word investing can send shivers down our spine. Investing is something that we all know that we should do. After all, why would we want to stick our money under a mattress when we can use that money to make money for ourselves? Still, we run for the hills whenever somebody asks us to expound on the value of investing our money.
The truth is that many people are confused because of what they think “investing” means. They get frozen by the idea of risking their money in something that they don’t understand. Yet, there are many different types of investments out there – from buying CD’s to making a Forex trade. Go ahead! Shake your money maker by trying some of these investment options.
Types of Investments
1) Stocks – This is what most people think about when they hear the term investing. There are many people who still don’t understand the stock market, how it works, or how they can make money by investing in it. They usually think that investing in stocks can only mean buying stock in individual companies. While many investors do choose this route, for common people like you and I, buying individual stocks may not be the best option.
Knowing boatloads of information about thousands of companies requires a lot of work. That is why many people opt to invest in the stock market through purchasing mutual funds. Mutual funds are essentially a group of stocks packaged together under one “umbrella” product. They holdings of the fund are managed by professional investors. Mutual funds allow the you to invest in many companies at once while the fund’s manager will buy and sell stocks from the fund as they see fit – eliminating much of the hard research for you.
Still another way for the common investor to invest in the stock market is to purchase Exchange Traded Funds (ETF’s). By investing in ETF’s, you are essentially betting that the market as a whole will go up or down. For instance, if you buy the SPDR Dow Jones Industrial Average ETF, you are (usually) betting that the Dow Jones Industrial Average will rise – in which case your ETF shares will increase in value, making you money. Out of the different types of investments that you can make in the stock market, ETF’s are generally the least intimidating way for newcomers – although there is obviously still risk.
2) Forex Trading – One of the coolest and most interesting types of investments can be found in Forex trading. Many people mistakenly think that they have never heard of Forex trading. Chances are, however, that they have; they just don’t realize it. Essentially, Forex trading (or foreign exchange trading) is trading in foreign currencies. It can be a great way to make money for somebody who is looking to invest.
While the name and concept may seem intimidating, the mechanics are really quite simple . For instance, if you think that the value of the Euro is going to increase over the value of the U.S. Dollar, you may wish to invest your dollars into Euros. If you are right, YAHTZEE! You have just made money that can be converted back into dollars. Otherwise, keep your money in foreign currencies and continue investing.
As with all types of investments, the potential is there to lose money if the exchange rates do not go your way. However, just like stock market investing, you can create stop-loss orders to limit your losses while opportunities for profits are unlimited.
3) Real Estate – This is one of those types of investments that many people forget exists. Buying real estate is something that many people understand, but don’t necessarily think of as an investment. Yet, not only can investing in your own home be a great long-term money maker, but investing in rental property is another great way to make money off of your money. Being a landlord myself, I love using real estate investing as a passive income stream. It certainly is not risk-free, but finding the right tenants can make it a low-hassle, high-reward venture.
4) Bank CD’s, Government Bonds, Etc. – If you are looking for extremely low-risk types of investments, you may want to consider certificates of deposits or government bonds. You can usually purchase these types of investments for small amounts of money. However, they typically do not provide very high rates of return. Furthermore, these types of investments create limited access to your money, so you may want to weigh whether or not those restrictions are worth the minimal returns.
As you can see, there are many types of investments available for all types and levels of investors. In my opinion, the key is to invest in things that you understand and find enjoyable. Knowledge is the key to overcoming intimidation. Learn as much as you can about each market before you invest. Try and diversify your investments within each investment category as well as between the differing types of investments. If you do, hopefully you’ll be able to sit on a big stash of cash at the end of the day!
What are your favorite types of investments? Do you prefer one type over another? Let us know in the comments below!