The term “investment” has been stifled into confusion from overuse. Its most popular base is in finance, where it is used to refer to such things as mutual funds, real estate, bonds, stocks, and, to a lesser extent, options, annuities, and commodities. All in all, an investment is an asset bought with the intention of generating income or appreciating over time.
Generally, as long as you adhere to safe investment practices, the longer you invest for, the higher your chances of growing your wealth. The reverse is also true: the shorter your period of investment, the higher your chances of making a loss. But all investments have one thing in common – there is always a higher risk of losing value in your asset than increasing it. Regardless of this risk, wise investments are still one of the most productive ways of growing your money.
The three main types of investments
This is the most popular type of investment and that most people are familiar with. Ownership investments are characteristically volatile but very profitable. They include:
The money required to start and run a business is an investment. Creating and selling a product or service (entrepreneurship) can bring you huge personal fortunes. A prime example in this case is Bill Gates, the founder of Microsoft.
Stocks are certificates that prove you own a certain percentage of a company. To clarify, all traded securities, whether currency swaps or futures, are ownership investments, although what you actually own is just a contract. Investing in a stock gives you the right to take a certain action (like in a futures contract) or a claim to that particular company’s worth.
These include such things as a signed Steph Curry jersey, the Mona Lisa, and even gold, as long as you purchase these items with the purpose of reselling them for a profit.
These are the types of investments that allow you to work as a bank. Since they are generally lower risk, they also tend to yield less as a result. They include:
Bond refers to a wide range of investments, from Treasuries to CDs to international debt issues and junk bonds. Different types of bonds have different risks and returns, but the risk of loss is generally lower than in ownership investments, but with a lower return.
*Your Savings Account
Even something as simple as putting your money in a savings account can count as an investment. You are literally lending money to the bank for it to dole out in the form of loans. You won’t smile all the way to the bank, but you don’t have to worry about any risks due to the FDIC (Federal Deposit Insurance Corporation).
Some people refer to these investments “as good as cash”, meaning that it is easy to convert them back into cash. They include:
*Money Market Funds
Money market funds have rather pitiful returns (about 1-2%) but relatively small risks. They are also more liquid than other types of investments, allowing you to write out cheques from your money market account like it is a checking account. Examples include commercial paper and US Treasury bills.