What are the 4 top types of investments?
What are the 4 types of investments? Can you answer that? We can! Come learn about investment types and tell us which ones you prefer.
Learn what are the 4 most common types of investments
We take that you have already noticed that today more people talk about investing. As a consequence, the media and news channels are now full of investment-related content and information, especially focused on the newbies. So, to contribute to this new trend, we want to show you what are the 4 types of investments.
But when we dive deeper and look for the demand inside the demand regarding this trend, we see people desiring to assure themselves and their families a more financially safe and steady future. Especially now that the world has experienced the chaos of a new pandemic, together with all its types of consequences, whether financial, social, etc.
If you feel you fit this profile of people wanting information that will help build a more certain future, continue here with us. To assist you in intelligent investment decision-making, we are showing below the four types of investments that you should know.
Have fun with your reading!
What are types of investments?
We also take that you already know that there are many types of investments. And each type has its own features, pros, and cons. Of course, this is not generally speaking. Because the pros and cons will vary depending on the investor’s goals and needs. On one hand, some may be more profitable. On the other, some may be more secure.
As a result, knowing the best types of investments, as well as each one’s main features is essential. That is to say if you really aim at becoming a truly conscious investor. But we believe that, by reading our article, you will be one step closer to achieving this goal.
But before we introduce you to the four types, we want to explain two investment categories. We have divided investments into growth and defensive investments. See the explanations below.
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Have you ever heard about not placing all the eggs in the same basket? This means exactly the same as diversifying your investments! And is one of the most widely promoted principles by prominent investors, because the idea is to lower hazards.
However, in order to diversify securely, you must understand several factors, methods, tactics, and philosophies linked to investments. Now, we want to introduce you to growth investing. Growth investing is a technique that focuses on companies with high growth potential. Many investors prefer them because they have a better possibility of generating considerable growth.
Growth investment can be defined as growth investing in a nutshell. After all, the focus is on the companies’ long-term growth potential, which increases the value of the paper.
Defensive investments are all investments with lower risk. They include high-quality, short-maturity bonds and large, high-quality established company stocks, as well as stocks that pay dividends. They could mean money spread across different sectors for diversification, or, buying basic-needs companies, such as utilities, healthcare, food, and waste removal.
For example, a defensive portfolio strategy is one that offers lower returns. But the advantage is that, if an investor needs cash quickly, s/he can easily convert it. Defensive investment strategies aim at defending your money. So, you will still get a modest profit out of your portfolio, but without the risk of losing too much. Defensive means preservation is the priority.
Instead of an aggressive or offensive strategy, investors looking for defensive strategies intend on diversifying across different companies, regularly rebalancing their portfolio. As a result, they minimize capital loss. In addition, some defensive stocks provide dividend income, which can help in the case of stock prices declining.
On one side, defensive investments mean playing safe and gaining less, at least most of the time. However, such investments are not always a guarantee of preserving your money. to protect an investor completely. As an investor, newbie or not, we expect that you already know that all investments come with a probability of risk.
But on the other side, diversifying also means playing with different types of investments. As a consequence, you can explore a little bit of growth and a little bit of defensive investments. By exploring all options, you will gain a lot of experience, as well as become the best person to answer what types of investments are best for you.
The 4 main types of investments for you to choose
Of all investments options, company stocks are the most famous. Investing in company stocks, or shares, is one of the most common ways to invest, as well as one of the most aggressive ways to obtain results. The value of a company’s shares is a fraction of its total worth.
As a result, when you purchase stock, you become a partner in the company. You can profit from the appreciation and sale of the shares, or from the payment of a dividend, which is a distribution of profits among the shareholders. Therefore, investing in this option can yield substantially better returns than investing in fixed income. It is, however, vital to understand how to manage risk.
Who carries cash nowadays? In the era of online shopping, e-commerce, digital wallets, contactless pay, etc., cash as a utility may no longer be needed. However, even digitally, “cash” management will always be an essential part of our lives.
Regarding cash investments, they include the usual bank accounts, savings accounts, and term deposits. And, like defensive investments, they also have lower potential returns. A pro related to having cash is liquidity, which means having it right with you in emergencies. However, a con is that it will lose value over time due to inflation.
Property investments fall into the growth investment category. Therefore, they consequentially involve higher risks. After all, the real estate market, as we can all read daily in our newspapers, is one of the most volatile markets. Meaning that housing prices may rise or fall significantly from time to time. As an example, we can mention the 2008 Economic Crash.
In addition, we must highlight that buying a house, or an apartment, for you to live in is definitely not the same as having an investment. To invest in real estate, you can either buy a house/ an apartment for others to live in (and pay you) or invest through a real estate investment trust. There are different REITs out there, whether retail, residential, healthcare, or office blocks real estate sectors.
Finally, fixed interest investments fall into the defensive investment category. Therefore, they involve lower risks and, as a consequence, lower potential returns as well. Of all the fixed interest investment types, bonds are probably the safest.
In addition, bond investments are probably one of the most famous types of fixed interest investments. But how do they work? Basically, the government takes a loan from you and promises to repay you adding a fixed interest rate. Nice, uh? This is very common in a lot of countries.
About the author / Thais Daou
Reviewed by / Aline Barbosa
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