We live in a world that revolves around money. Salaried jobs may offer financial security but to generate wealth, one must also become an investor. There are various forms of investment that can help you on your path to financial freedom. In this article, we shall take a look at some types of investments and see what they entail.
Stocks or shares represent fractional ownership in a company. The stock market refers to public markets that exist for issuing and trading in such commodities. Sale of equity is also another way companies use to raise funds but unlike bonds, they are not loans.
When you purchase a company’s stock, you gain equity and ownership proportionate to the number of shares you purchase. A vibrant stock market is an integral part of a country’s economic development. The success and failure of your investment depends on how the company will perform. Seasoned investors make millions trading in stocks. However, there is a possibility of losing part of your investment.
A venture capitalist is an investor who offers financing, insight, and connections to startups and existing companies in exchange of equity. If you have the funds, this is a good way of owning part of a business without having to start one. The key is to select the right companies that will offer maximum returns for your investment. Furthermore, don’t hesitate to offer advice and consultation when it comes to applying for loans for small businesses and other major financial decisions. In other words, thorough due diligence and willingness to speak your mind are essential while assessing and managing investment opportunities in business.
Bonds are loans to government institutions or big corporations that are repaid at an agreed-upon date. They earn interest over the loan period. Governments and multinationals operate on immense budgets. At times, their financial reserves and bank loans are not able to fully fund their projects. In such instances, they raise funds through the public via bonds. Investing in bonds has the following advantages:
• Regular interest payments until the bond matures.
• You can resell it to other investors at a higher price.
• Relatively safe. Upon maturity, you receive your principal back. Unless the borrowing entity defaults, you cannot lose your investment.
A mutual fund is an investment vehicle that allows investors to pool resources so that they can be invested in various securities. They share risk and reward. The funds are managed by an investment manager. When you invest in mutual funds, you receive shares called mutual fund units.
Advantages of investing in mutual funds
• Investment decisions are made by professionals who are devoted to analyzing markets.
• Pooled funds allow investments in diverse commodities thus reducing risk.
Disadvantages of mutual funds
• They attract annual operating and shareholder fees.
• You have no power over investment decisions.
Real estate consists of land and the property and rights that come with it. Investing in real estate is one of the most lucrative options for investors as it offers steady income. You can develop a property for sale or as rental units. It can be highly rewarding and has benefits such as:
• Long term financial security. Rental income offer a steady inflow of cash and the value of the property also appreciates with time.
• Property owners receive many tax exemptions.
• Mortgage payments are covered. The rental income from property is enough to cover mortgage payments from the property. It is, however, important to ensure high to full occupancy at all times.
• You can build equity for the future. Your equity increases as you pay off your mortgage. This allows you to invest in more properties and increase your cash flow.
Everyone can become an investor. Even if you are employed or have no experience, there are passive investments you can venture in. No investment is risk-free, but a good investment can transform your life.