Types of Investment

Types of Investment

The purpose of investment is to provide capital to make future progress financially and professionally. In layman’s terms, investment is allocating of resources in order to achieve future goals. Therefore, investment can be described as a process by which current assets are developed to serve future needs, such as investment in raw materials, new technologies, business enterprise, etc. It is also possible to call it an investment program.

To invest is a term used that refers to the action of reserving money for some future use with the intention of obtaining a certain return/value in future. Simply put, to invest implies having an asset or some thing with the intention of generating a definite income or return from the investment, which is basically an appreciation in the worth of the asset over some period of time. This return may come in form of cash, dividends, interest, rents, capital gains/profit, and so on. There are different types of investments available in today’s market such as stocks, bonds, mutual funds, real estate property, commodities, and so on. The stock market, for example, is the most popular arena in which investors make money by trading shares and options with one another.

In relation to other types of investments, there are certain restrictions on what a person can buy and sell as well as on the manner of allocation of capital within the organization. For example, bonds can be traded only within specific institutions like banks and other financial institutions; stock options can be exercised only within a specified time frame; commodities can be traded only within specific commodity exchanges; and corporate securities cannot be traded publicly. However, different asset allocation schemes can be adopted for each individual to suit his/her individual circumstances. For instance, mutual funds are generally open ended and allow investors to create a portfolio of investments that span multiple sectors or industries. As mutual funds are usually managed by professional investment managers, these schemes are considered ideal for long term investments.

In relation to stocks and bonds, both have somewhat different ways of earning returns. While stocks earn their income from dividends, interest payments, and capital gains/profit, bonds earn their income primarily from interest rates and fixed deposits. When we talk about fixed deposits, this refers to the savings account used in the banking industry for deposit purposes. The deposit account itself earns interest from its balance.

When it comes to real estate investing, the property itself is the collateral for such investments. However, like stocks, real estate properties are subject to risks and capital gains/profit. When it comes to purchasing residential and commercial real estate assets, one has to be very careful in making the right investment choice. If you are planning to invest on residential real estate properties, you should look out for either distressed or vacant properties, and then take advantage of them at lower prices.

There are two main types of residential real estate investments; namely, leasehold investment and rent-to-own investments. Leasehold investment refers to the buying and selling of a part of a building, which you occupy by signing a lease agreement with the owner. Normally, such investments earn higher profits than the ones that involve the rent-to-own models. However, these investments require more long-term planning and monitoring since they tend to make larger profits as the period for earning growth goes on.