One of the ways to keep your money from depreciating over time by having it in the bank is financial investments. But what types of investments exist? What is the relationship between benefits and risks? How do they work? These are the main questions that someone who does not know the world of investments can ask themselves. Let’s try to solve them.
What are the types of investments?
An investment, in short, is allocating a certain amount of our money to an asset that will give you profitability in a certain period of time. If everything goes well, of course. Because an investment may also not generate the desired benefits. Or you can even lose the money invested.
If you want to invest, but you are not an expert, you can do like Farrell and dedicate some of your time to training on basic concepts. If you are reading this article, you have just taken a good first step.
What two types of economic investments are there?
In reality, there are two main types of investment. Although there are many subtypes within these two main ones: they are financial investments and physical investments.
- Financial investments are those in which you acquire products that are not physical and are formalized through a contract. This includes, for example, stock market investments or investment funds.
- Physical investments are those in which a physical product is purchased from which an attempt is made to obtain a return. For example, buying a house to rent it later or buying land to sell it at a higher price in the future.
How do the types of investments work?
The two types of investments have a large number of subtypes. We are going to highlight the main types of investment within the two types that we have discussed:
Fixed income investments
It is a financial investment in which the investor deposits money in a fixed manner for a set time and, in exchange, receives a return on the money invested. This is a low-risk investment, and according to the risk assumed, the benefits go, which are also low. It is usually focused on people inexperienced in investments.
Variable income investments
Variable income investments are also financial investments. They work the same as fixed-income investments, but in this case, the profitability is not known nor is it guaranteed . It is an investment with greater risk, but the benefit can be greater. Although you can also lose money.
Investments in the stock market
This is one of the most popular and well-known types of investments. Here it is possible to buy and sell shares or financial instruments within a stock market. Let’s say you can buy a portion of a company and sell it whenever you want. Any type of capital can enter here since it is easily accessible, but knowledge is needed to receive benefits.
Foreign currency investments
Another of the most common financial investments is the purchase and sale of currencies, such as the dollar, the euro, the yen or any legal tender that exists. The goal is to buy and then sell when the value of the currency rises. It is similar to the stock market, but with the difference that, in general, there is great liquidity in currencies.
Investments in raw materials
One of the most used physical investments is investment in raw materials. By raw materials, we understand, for example:
- Energy, such as oil
- Precious metals (gold, silver…)
- Industrial metals (tin, copper…)
- Agricultural products
- Perishables
These are products that are obtained from nature, that have value and that are purchased to make other types of products or to be used, such as energy.
Investments in real estate
Investment in brick is another of the most used physical investments since real estate does not usually lose the value it has. Quite the opposite: with the passage of time they tend to revalue. Like any investment, it has risk, but the normal thing is that the purchase of real estate can be profitable in the long term, either by buying and renting or buying and selling a few years later.
What types of investments are profitable?
All investments involve risk because the market can suffer different fluctuations. What works well now may not work in a few months. It is precisely for this reason that the most intelligent investment strategy is the one based on diversification.
It is about distributing the money between different products. Thus, if one stops being profitable, the profits generated by the rest will compensate for the loss.
These are just the most well-known and used types of investments, but there are many more. You should know that the higher the risk, the higher the profitability and vice versa. Therefore, before investing, we recommend advice to have clear accounts. In fact, this is what Pepe Promedio and his family did and, after getting advice, they can now enjoy the long-awaited financial freedom.
