What Are The 4 Types Of Investments?

As of April 2021, statistics revealed a spike in the number of Americans who invested their money compared to the last twelve years. Contrary to common belief, investments aren’t just for people with loads of cash; which means you don’t need to be Bill Gates or Elon Musk in order to invest. If anything, investing is necessary for anyone looking to build wealth, financial security, independence, and achieve specific financial goals. You might be wondering how or where to invest. So, what are the four types of investments?

The four types of investments include cash, fixed interest, shares, and property. They are further split into two sub-categories, known as growth and defensive investments.

The type of investment you pick will depend on your financial goals, as we’ll unpack in this guide. We’ll start by tackling a few key investment questions before explaining the different types.

What’s The Role Of A Business Mentor?

The investment world can be confusing and intimidating to a newcomer; the industry jargon and concepts don’t make it easy. The person who can make your investment journey easier is a business mentor! Well, mentors can advise on all sorts of company problems - that’s why you should look into finding a mentor. Below are some of the questions you’d ask a business mentor and some of the advice we’d give for each.

What’s The Difference Between Savings And Investments?

It’s not uncommon for laymen to use the terms savings and investments interchangeably. But these concepts aren’t the same. When saving, you’re setting aside a part of your income to use later. Investments are made in order to generate revenue.

What Are The Risks Associated With Investments?

Investing does come with risks. However, different types of investments attract different levels of risk. You can face market risk, where your investment declines in value because of interest rates, currency, and equity risk. Then there’s liquidity risk, where you won’t get a fair price when you eventually sell your investment. Inflation risk is also possible, where the value of your investment doesn’t keep up with inflation, resulting in loss of purchasing power.

What Are Some Common Investment Tips?

Investing blindly without doing your due diligence is never a good idea. It’s always wise to pick an investment option that aligns with your financial goals. Are you looking for short or long-term investments? Do you want to invest early? Each day you keep your money at home, you’re potentially losing out on profitable returns. You can never go wrong with diversifying your investment portfolio. That way, if one of your investments isn’t doing so well, other interests may offset the loss.

Growth Investments

Growth investments are ideal for long-term investors who can withstand imminent market fluctuations. Several variables such as interest rates, economic growth, technological advancements, and inflation impact the return on your investments. If you opt for growth investments, you must embrace the fluctuations comfortably without risking your financial status. Shares and properties fall under this bracket.

Shares come with several risks. When you invest in shares, you’re buying shares of ownership in a public company. Once you own them, you can often receive dividends when the company shares profits with investors. Also, they help grow your initial investment over the medium to long term. The price of shares is volatile, often fluctuating daily.

But the riskier the investment, the higher the returns. Just like investing in shares, properties are also risky investments, but can be great for the right person. The price of the housing market can shoot upwards or fall significantly over time. When the latter happens, property investments carry a substantial loss. That’s why they are more suitable for long-term investors.

Defensive Investments

Unlike growth investments, defensive investments carry a low risk. They are structured to generate consistent income rather than consistently grow your money. Cash and fixed interest fall under this category. You’d do well to opt for this type of investment if you’re not looking for long-term investments and want to use your money in the foreseeable future.

Cash investments typically include your everyday bank accounts, fixed-term deposits, and high-interest savings accounts. Of all the types of investments, cash investments carry the lowest risk, but they also offer the least return. So, if you’re looking to build your capital growth, it’s advisable to steer clear from cash investments.

On the other hand, if you’re looking for regular income and want to minimize the risk of your investment portfolio, cash investments are the way to go. If you happen to hit a financial dip, you can quickly retrieve your cash and sail through the downturn. Besides, it’s always a good idea to have some liquid cash on hand instead of having all your money tied up in stocks or property. However, you need to be prepared for the possible reduction in the buying power of your cash over the long term due to inflation.

You should also consider fixed interest investments if you find that you’re quite risk averse. Bonds are among the most popular types. Bonds are loans taken out by the government from willing investors that are to be repaid at a fixed interest rate. The good thing about bonds is they carry lower levels of risk, and you can sell them relatively quickly, much like cash. However, the downsides include the risk of capital loss. Plus, they don’t avail high returns when compared to investing in shares or property.

Conclusion

Opening yourself up to the world of investments is the best route you can take if financial stability is your goal. Admittedly, investing comes with risks, but you have four different options to take advantage of. Either way, whether you decide to invest in shares, property, cash, or fixed interest bonds, always ask the right questions before selecting an option.

Also, never put all your eggs in one basket; you should diversify your options. Finally, don’t wait a day longer to invest. Why not start now and take your first step towards financial freedom?