When we find ourselves at a crossroads and want to know how to increase our wealth substantially, we can usually solve this through investing. Instead of putting our money in a bank account at almost zero interest, we can try to find more advantageous ways of earning money.
One way to achieve that is through traditional investment vehicles. In this article we’re going to cover some of the most popular ones. The focus here isn’t on how to build an investment portfolio, but rather on what traditional investing is all about, and what types of investments fall within this category.
What are traditional investments?
First, let’s start by giving a definition of traditional investment.
One of the easiest ways to understand traditional investments is to think of the types of investments most people would normally consider like stocks, fixed income, mutual funds, index funds, and cash equivalents. Basically, those are the kinds of investments that most people would probably first consider, that are expected to appreciate over time, and that are expected to pay dividends or interest. There is a debate on whether real estate is a traditional investment vehicle or an alternative one, but from our side, we weigh consider it a form of traditional investing.
What are the main types of traditional investments?
Now, it is time for us to explore the main traditional investment options:
1 – Stock investing (Equity investing)
This is often the first thing that comes to mind when people think about traditional investing. Stock investing, or equity investing, is essentially a way of acquiring ownership in a company and of hopefully profiting from that ownership. The main reason why companies go through stock issuance is to raise capital for the business. As an investor, the main reason is to be remunerated either by the appreciation of the value of the stocks you are buying or through dividend payments, or both.
2 – Fixed income investing (Bond investing)
Unlike stock investing, fixed income (bond) is about lending your money to a borrower, which can be an entity or a government. It is typically considered less risky than stock investing. It also earns you a fixed interest over the course of the fixed-income investment. Examples of fixed income instruments include government bonds, commercial papers, and treasury bills.
3 – Mutual fund investing
These traditional investment vehicles give you the option to add instant diversification to your portfolio by gaining access to a basket of assets managed by a professional fund and asset managers, who, of course, charge you a fee. Depending on the mutual fund you choose, this can be an affordable way to get started. It can also let you take a more hands-off approach. There are some risks associated with this investment, depending on the portfolio managers you choose, and the decisions they take. Thus, it’s important to consider how much of your investable capital you want to allocate to mutual funds.
4 – Index fund investing
Index funds are another popular form of traditional investing. These are funds that track the performance of an index, as the name suggests. This can be the S&P 500, Dow Jones, or another index. Index funds are similar to mutual funds, which provide you with immediate diversification, and also pool the money of a larger number of investors.
5 – Real estate investing
This type of traditional investing involves investing in properties and land. There are several advantages to real estate investing. The main one is the psychological side – purchasing something that you can touch and feel. With this type of investment, you can aim to earn a rental income, or to profit from property appreciation. Now, like with other investment types, real estate also has disadvantages. For example, you may be unable to find a tenant or to sell the property. That said, real estate investing can still be a great way to make money and grow your wealth.
With the right help, building a portfolio that incorporates traditional investments can be easy. There are a few things you need to consider, like your preferred assets and your risk tolerance, but if you’re working with an experienced portfolio team then choosing investments can be a very simple process. To find out more about investing, check out our blog. To find out more about our portfolios, book a free consultation with our team.