Over half of U.S. families own publicly traded stock with the average stock owner likely invested through mutual funds and retirement plans.
Although stocks are a common investment, not many understand the different ways to trade. There are multiple different types of investments that any investor should know about.
When you know all of your options, you diversify your investment portfolio based on your needs. Keep reading to learn more.
One of the most commonly known types of investments is stock. Stocks refer to an investment in a specific company.
When you buy a stock, you are buying a share of the company’s assets and earnings. Companies sell shares to raise money for their business which investors can then buy and sell among others.
Stocks come with high returns but involve a lot of risks. Companies that lose value or go out of business will cause a stock, and your earnings, to plummet.
Learning about bullish sentiment can help you read the market to know when to buy or sell a stock. For bullish bearish information click the link.
A bond is a loan made out to the government or a specific company. When you buy a bond, you are essentially allowing the issuer to borrow money and pay you back with interest.
Bonds are less risky in the financial industry, especially when compared to stocks. The downside is that they offer lower returns. The primary risk of a bond is that the loan issuer could default.
A basic financial institution bond from a corporate issuer is the riskiest type. U.S. government bonds eliminate your risk because they are backed with a guarantee.
When looking into investment diversification, mutual funds might be an attractive option. Mutual funds allow investors to purchase multiple investments in one transaction.
Mutual funds pull money from different investors and then use a professional manager to invest the money in other assets like stocks or bonds.
Mutual funds are diverse and might have a specific type of stock or bond in mind for investing. The risk of this depends on what is in the fund.
If you add exchange-traded funds (ETFs) to your investment portfolio, you’ll be investing in a cheaper form of mutual funds.
An ETF tracks a benchmark index and mirrors the performance of the index. ETFs are purchased much like stocks and their price fluctuates throughout the day.
This differs from mutual funds as the price stays the same no matter when you choose to buy or sell. If you want more control over the cost, choose an ETF over a traditional mutual fund.
Types of Investments That Can Expand Your Portfolio
Although these aren’t the only types of investments available, they are the most common. Investors looking to expand their portfolios can choose from various options.
Each has its pros and cons along with different levels of risk. Stocks and ETFs come with the most risk while bonds and mutual funds have less of a risk.
Choose wisely and don’t forget to come back for more articles like this!