A handy guide on types of investments

In today’s day and age, keeping your money in your bank account, expecting small interest is not enough. With the market fluctuating every day, it is important to be wise with your money to get the most out of it. While the idea of investment can seem daunting, it can also be made easy with some research or by hiring an investment advisor.

Here is a brief investment guide for you.

This refers to an investment that is made in a particular company. Here, you buy a few or many shares of a company, depending on your investment. This type of investment is of high-risk value, giving you either high returns or big losses. Therefore, it is pertinent that you do your research before buying any stocks.

This is similar to giving a certain amount of money to the government. The government uses this money for its own investments and expenses. However, since this is a loan from you to the government, the government returns the money with interest.

Mutual funds
This is a mix of investments that include stocks, bonds, and other assets. In a mutual fund, the account manager invests money in various stocks on your behalf. When these investments start giving returns, the MF manager disperses your earnings as per your investments. As the MF gains higher returns, its value increases. You can even sell your MF at a higher price for a profit.

Index funds
While this is a type of MF, unlike an MF, it does not have a manager who picks and chooses different investments. An index fund mirrors the performance of existing stock by holding the stock within a favorable index range. With this kind of investment, the earnings are made in dividends or interests, which are then distributed to the investors. They are likely to be less expensive than mutual funds.

Exchange traded funds
They are similar to index funds. But one of the biggest differences between the two is that ETF pricing fluctuates several times during the day like a stock. However, this price fluctuation is what attracts a lot of investors as they have more control over when they should buy or sell ETFs.

This is a bit complex to understand and requires sound knowledge about the functioning of stock markets. Options are a type of investment where an investor buys a contract of a stock at a set price and date. The investor then has time till the set date to sell this contract, which is usually around 100 shares. To simplify it further, this contract is you setting a price (affordable for you) of a stock you expect to increase in value at a later date. If your estimations are right, you can purchase the stock for less than the going rate. However, if you are wrong, you lose the cost of the contract.

Who is an investment advisor?
An investment advisor helps you understand market risks. They also help you devise an investment strategy as per your financial goals, helping you decides where to invest. Some confuse finance advisors with investment advisors; however, it should be noted that investment advisors are legally registered with the Securities and Exchange Commission or a state securities regulator. Therefore, they have to provide accurate and real information about investments and market conditions.