What are the different types of investments?
Let’s define an investment first. An investment is allocating money/resources with the expectation of generating a profit. This could be in the short or long term. This is generally the way to grow wealth.
That being said, there are many types of investments you could invest in.
This post is about different types of investments.
Let’s dive into the top 7 different types of investments.
1. Stocks
Stocks are essentially a slice of ownership in a company. When purchasing a stock, you become a percentage of a shareholder. Therefore, benefiting from the company’s positive performance. The hope when purchasing a share of a company is that the company does well by growing and becoming (more) profitable, that the stock price will grow. Therefore, the share price will be higher than what you paid; making a profit.
2. Bonds
Bonds are issued by the government to raise capital. Since you’re investing with the government, they’re known to be safer than investing in the stock market or even real estate. Essentially, you lend the government money in the vehicle of a bond, for a fixed period of time, and when you cash in the bond after its maturity date, the hope is that it’ll return a profit.
3. Real Estate
Real estate is investing in the purchase of properties. Properties could include residential homes, commercial buildings, or even land. Real estate becomes profitable when either it’s sold at a higher price than the purchase price, or it’s utilized to generate rental income.
4. Real Estate Investment Trusts (REITs)
REITs are another type of investment related to real estate without having to directly finance, own, or manage properties. The idea is to gather funding from multiple investors to then invest into a portfolio of income-generating real estate assets.
There are several types of REITs: equity, mortgage, hybrid, and specialty. Comment below if you’d like to learn more about REITs!
5. Mutual Funds
Mutual funds gather funding from multiple investors to then invest into a portfolio of stocks, bonds, or other securities. Similar to REITs, only the investment is comprised of stocks, bonds, and other securities, instead of real estate properties. These are managed by fund managers.
6. Exchange-Traded Funds (ETFs)
Similar to Mutual Funds, only the main difference between ETFs and Mutual Funds are that ETFs trade on stock exchanges. They are treated similarly to stocks. A benefit to ETFs is that they typically trade at lower expense ratios than mutual funds do. This is because mutual funds are managed by fund managers; whereas ETFs are not.
7. Certificates of Deposit (CDs)
Similar to bonds, CDs are investing with the bank for a fixed term and interest payment. Once the CD reaches its maturity date, then the hope is that when you cash in the CD, the investment will turn a profit.
To reiterate, the top 7 different types of investments are:
- Stocks
- Bonds
- Real Estate
- Real Estate Investment Trusts (REITs)
- Mutual Funds
- Exchange-Traded Funds (ETFs)
- Certificates of Deposit (CDs)
There you have it! Interested in learning more about the different types of investments? Check this post out for the best index funds for Roth IRA!
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