What is an investment? You probably have this question in mind when you are thinking about saving your money for future profit or use. A lot of people think that investment is similar to saving. They are almost the same in a sense but somewhat different. An investment is basically a careful way to use your money now so you can enjoy profitable and beneficial results in the future. Any way that enables you to save up money and then generate it for future use is now considered as an investment.
And there are different types of investments, of course none of them is perfectly designed for everyone. You need to know the best money investments for your personal needs, which one really bings decent benefits to you.
Investment and Its Various Types
So, what are the major types of investments? You probably have heard about stock investment – that’s number one. And then there are bonds investment and cash equivalent. Whether or not you want to invest in any of these types, it is up to you. You can also invest in all three indirectly and directly through mutual funds. I will now explain these three types of investments briefly.
Stock (Share) Investment
Stock investment happens when you buy a share (or a part) of a company’s ownership. This is often done by companies or startups. Once you buy the stocks, you become the shareholder. Moreover, you still have to decide whether to buy the common stock or the preferred one. Shareholders of the common stock have ownership percentage and also voting rights. They also get dividends. Shareholders of preferred stock, on the other hand, don’t have any voting right and they get dividends within the predetermined amounts and specific intervals.
People tend to mistake stocks and bonds – thinking that they are the same. Whereas stock investment can happen for a long time, bond investment is quite short with a limited time range. In bond investment, you are basically lending your money to the one issuing the bond – which can be a government entity or company.
Bonds are set within a limited period of time. During that period, interest (whose rate will be set by the issuer) will be given to the bondholder, and this is called the coupon rate. This rate can be variable or fixed. During the maturity date (the end of the period), the issuer needs to repay the original amount of the loan.
Different people have different opinions about these two investment types. Some people say that bonds are more profitable than stocks because of the steady income flow. Some say that stocks are more profitable for its long term return and benefits. It basically depends on your investment needs and styles. People who are risk-takers tend to prefer short-term profitability, but without a good knowledge they would risk losing. While those who are risk-averse tend to seek for a long term plan where they can receive dividends and bonus pays periodically.
This is the type of investment that will protect the original investment while giving you access to the money. Savings accounts, Certificates of Deposit, and money market accounts are included in this type of investment. Despite the benefits of generating a stable return rate, this investment isn’t created for long-term goals, like for retirement.
Best Money Investments for Your Personal Needs
Here are the steps to find out which ones are the best money investments.
#1 Set The Goals
Firstly determine your goals. They should be (a) why you want to invest (what for) and (b) how much return you want to receive. For example, in order to take an early retirement, and you want $50,000 to set up your own antique business.
#2 How Long To Invest It For
The term of your investment varies depending on your goals and the investment type. If you were planning an early retirement like the example above, you would choose a long term investment plan such as 25 years.
#3 Consider More Than One Plans
It's good to diversify by spreading your investment across different plan in order to minimize risks. For example if you buy company shares, choose companies from a few different industries, e.g. construction, pharmaceutical, catering.
GFC (Good Financial Cents) has recently advised the top 14 best low risk investments with the highest returns. The list includes dividend paying stocks as well as preferred stocks, Money Market Funds, Municipal bonds, cash value life insurance, also some unique way of investments including LendingClub. As you can see there are different ways to save your money.
Some options that include a tax-deferred way (like annuity or IRA) are also an option. Don’t be too fixated on the profits because such a way of saving money is also prone to risks, such as interest rate risk, repayment risk, and also credit risk. But with these various types of investment, you can have the option to choose the one fitting your needs.