There are many different types of investments, and each offers a different level of risk and reward. As an investor, it is important that you take the time to understand the options available to you and which types of investments might be suitable. This will help you make a more informed decision as to which investment product is right for you.
1 – Stocks
Stocks, also known as shares or equities, are financial instruments. In legal terms, they indicate ownership in a company and a person’s rights to a share of the company’s assets and earnings. In financial terms, the value of a stock represents the price at which ownership in that company can be bought or sold. Investors can buy, and if they wish, sell stocks on the stock market via a stock exchange. This allows them to either keep their stocks and earn money in the form of dividends, or to try to trade their stocks at a profit.
2 – Bonds
When a company or government needs to raise money, it can issue bonds. These bonds work like loans. They are contracts that allow organisations to borrow a fixed amount of money, at a fixed interest rate, for a fixed amount of time. When the bond contract expires, the bond issuer must repay the money they borrowed. Investors can buy, and if they wish, sell these contracts on the bond market. This allows them to either keep their bonds and earn money from the interest, or to try to sell on their bonds at a profit.
3 – Commodities
There are a wide range of tradeable commodities including gold, silver, crude oil, livestock, coffee, cotton and sugar. Commodity prices can change quite quickly, often in response to potential future changes in supply and demand. This can create great investment opportunities. Despite their high volatility, investing in commodities can help diversify a portfolio and reduce its overall risk level. This is because commodity prices move differently to stock prices, and if stock prices drop, it’s unlikely that commodity prices will drop too.
4 – Indices
Stock market indices are simply stocks that have been grouped together in a hypothetical list and given an overall market value. Each index is different in terms of both the stocks chosen, and the way that its value is calculated. For example, an American stock market index might focus on top-performing American companies, while a German index might focus on German companies. While it is not possible to invest directly in indices, it is possible to invest in financial instruments that are based on indices, such as derivatives.
Final Thoughts
These are just a few examples of the different types of asset classes you can invest in. For more information about our investing services, feel free to contact us.
Risk Warning: The information in this article is presented for general information and shall be treated as a marketing communication only. This analysis is not a recommendation to sell or buy any instrument. Investing in financial instruments involves a high degree of risk and may not be suitable for all investors. Trading in financial instruments can result in both an increase and a decrease in capital.
