3 Different Types of Investments

There are 3 different kinds of investments, aligned to cash, bonds, and equities. Fortunately, the amount of information that you need to learn has a direct relation to the type of investor that you are. For example, making investments in the stock market can be scary for those who know little or nothing about financial investments, especially because stock prices are volatile, and can easily move down by 20% within a week of investment if negative news comes. If the stock is good quality, then the prices will bounce back as soon as markets stabilize. The stock markets are suitable only for a one of the three categories of investors.

There are also 3 types of investors: conservative, moderate, and aggressive. The different types of investments also cater to the three levels of risk tolerance: low risk, medium risk and high risk.

Conservative investors often invest in cash and interest bearing savings accounts, money market accounts, US Treasury bills, and Certificates of Deposit/Fixed Income deposits. These are very safe investments that grow slowly and steadily over a long period of time. These are low risk investments and their returns are considered good in uncertain economic conditions and if inflation is not high.

Moderate investors often invest in corporate bonds and mutual funds. Such investors also invest in real estate, providing that it is low risk real estate, like apartments/residential or commercial real estate that can produce regular rental income.

Aggressive investors are willing to take higher risk and often investing in the stock market in a wide range of stocks, including companies that have international operations and exposure to the business cycles. Such investors usually spend most of their time in managing their investments, and have strong understanding on corporate financial analysis and have the ability to track a company’s business activities. They also tend to invest in business ventures and higher risk real estate like properties at planning stage before construction or as the pre-launch investors. For instance, if an aggressive investor puts his or her money into an older apartment building, then invests more money renovating the property, they are running a risk. They expect to be able to rent the apartments out for more money than the apartments are currently worth – or to sell the entire property for a profit on their initial investments. In some cases, this works out just fine, and in other cases, it doesn’t. It’s a risk. When you invest a mutual fund, you are engaging the services of such investment professionals.

Before you start investing, it is very important that you learn about the different types of investments, and what those investments can do for you. Understand the risks involved, and pay attention to past trends as well. Long term invesment over 10-20-30 years have produced the best annulized returns. Real Estate like land can be owned for longest durations, while stock market investments directly in the Index (like DowJones, S&P500, Nasdaq, FTSE100, Nifty50, CAC40, etc) are also very reliable long term investments. History does indeed repeat itself, and investors know this first hand!

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