Author: Michael Zakko
Publication date: 21.02.2024
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Many people find investing intimidating due to the number of possibilities and the difficulty of selecting the best investments for your portfolio. This guide takes you through the most popular investment types and explains the reasons behind why you should think about include them in your portfolio.
What Is Investing?
Generally speaking, investing is the process of using money to fund a project for a period of time with the goal of making a profit that surpasses the initial investment. It is the process of allocating resources, most commonly money, with the goal of making a profit or income.
In investment, risk and return go hand in hand. While higher returns are typically associated with higher risk, low risk typically translates into low expected returns. Basic assets like bonds and Certificates of Deposit (CDs) are considered low-risk, while stocks are considered to be riskier.
Types of Investments
Stocks
Stocks, also known as shares, are arguably the most popular and straightforward kind of investments. Purchasing stock entitles you to a share of an ownership in a business or company that is publicly traded. You may purchase a stock in many of the largest companies in the world since they are publicly traded.
How you can make money: The idea behind purchasing stocks is to wait for price appreciation before selling them for a profit. However, there is a chance that the stock price could drop, in which case you would lose money.
Bonds
Purchasing a bond is like lending money to a entity. This is usually a company or a government organization. Bonds usually carry a smaller risk than stocks, but they also usually have a significantly lower rate of return.
How you can make money: Interest payments are paid to the lender or investor while the money is being borrowed. You get the principal amount back when the bond matures, which means you've held it for the period of time specified in the contract.
Exchange-Traded Funds (ETFs)
Exchange-traded funds (ETFs) are a collection of investments that tracks a market index, such as the S&P 500, which represents the top 500 US firms. Since ETFs are more diversified than individual stocks, they are frequently suggested to beginner investors. Selecting an ETF that tracks a wide index will help you reduce risk even more.
How you can make money: ETFs can be profitable investments, much like regular stocks, if you sell them when their value increases.
Certificates of Deposit (CDs)
An investment with a certificate of deposit (CD) is considered as having extremely little risk. You get interest on the money that you give the bank for a set period of time. You get your principal amount back plus the pre-agreed amount of interest when that time period expires. Your interest rate will probably be higher the longer the loan period is.
How you can make money: With a certificate of deposit, you make money from the interest that you earn during the term of the deposit.
Real Estate
One of the most common ways for investing money is buying a home or property. It offers a place to live and could appreciate in value over time if housing prices rise. Some people could invest in real estate by buying several homes to rent out and profit from the rental income.
How you can make money: The property can be rented out or sold for a better price, depending on your financial situation.
Cryptocurrencies
Digital assets known as cryptocurrencies are traded on online platforms. Cryptocurrencies are neither issued or backed by a central bank or government, in contrast to traditional currencies. A blockchain is a type of digital ledger system that is used to distribute cryptocurrency assets. The price of cryptocurrency assets might fluctuate greatly and rise or fall frequently during the day.
How you can make money: By holding the cryptocurrency in the hope that its value will rise and then sell it for a greater price.
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Or start trading with Binance - one of the safest cryptocurrency exchange platforms.
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