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11 Types Of Investments (and how they work)

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Investing is a great way to grow your wealth, but unsurprisingly, the sheer amount of often complicated-sounding options is enough to intimidate a lot of people. There are lots of options to consider when it comes to investing, and it can often be difficult to figure out exactly which investments are the best choice for your portfolio.

In this guide, we’ll look at some of the most common investment types and consider why you might want to choose them to add to your portfolio. If you are serious about getting started with investing, you may also want to consider using the services of a professional financial advisor who can guide you through your options in more detail and help you find the right investment strategy for you.

Different Types Of Investments To Consider

Stocks

Stocks are often the first type of investment that come to mind, and they are the simplest and most well-known investment type. Buying stocks involves buying an ownership share in a public company. And since many of the biggest companies in the country and around the world are publicly traded, you can buy stock in some of the biggest household brands.

When you buy a stock, you are doing so in the hope that the price will go up, allowing you to sell your stock on for a profit. On the other hand, however, there is always the risk that the stock could go down, in which case, selling it would be a loss. You can buy stocks from a broker, either face-to-face or online.

Bonds

Bonds are another popular investment type that the majority of people have heard of. Buying a bond means essentially lending money to an entity, that is typically a government or business. Companies issue corporate bonds and governments issue municipal bonds. Once you have held the bond for a predetermined period of time and the bond matures, you will earn back the amount that you spent on it alongside a determined rate of interest.

Bonds are often an excellent starter option since they tend to be lower risk than stocks, although it’s important to bear in mind that the rate of return is often much lower in comparison. And, there is always some risk involved – for example, if the company that you buy a bond from goes bust.

Retirement Plans

If you are considering investing as a way to grow your retirement savings, there are a number of different types of retirement plans to choose from. The most popular is the RRSP (Registered Retirement Savings Fund) which allows you to save towards your retirement tax-free.

You can also take advantage of workplace retirement plans that are sponsored by your employer, where any contributions that you make will be met with an additional payment from your employer, who may even match the amount that you are saving.

When you pay into a retirement plan, you do not need to pay any tax on the money that you save until you withdraw it when you are retired, when you will likely be in a lower tax bracket.

Mutual Funds

A mutual fund consists of the money of several investors that is broadly invested in a number of different companies. Mutual funds can be managed either actively or passively. In the case of an actively managed mutual fund, there is a fund manager who chooses companies and other areas in which to invest the investors’ money. Fund managers are tasked with choosing investments that are likely to increase in value in order to beat the market.

On the other hand, a passively managed fund will track a major stock market index, such as the S&P 500 or Dow Jones Industrial Average. You can learn more about investing in index funds Canada at Wealth Simple.

Wealth Simple offers a range of investment products to help you get started with choosing the right type of investments for you and growing your wealth. Mutual funds typically carry the same risks as bonds and stocks depending on the investment; however, the risk does tend to be lower due to the diversity of these investments.

Exchange-Traded Funds

Exchange-traded funds are quite similar to mutual funds in many ways, including the fact that they are a collection of investments tracking a market index. However, EFTs are bought and sold on the stock market, unlike mutual funds which must be purchased through a company.

The price of EFTs will fluctuate throughout the trading day, unlike the value of a mutual fund which is simply calculated as the net value of your investments. EFTs are an ideal option for new and inexperienced investors, since they offer more diversity and lower risk compared to investing in individual stocks.

Options

Investing in options is another way of investing in a stock. Buying an option means that you are purchasing the ability to buy or sell a certain asset at a certain price at a certain time.

There are two types of options: call and put. Call options involve buying assets and put options involve selling them.

Investing in options is a highly advanced investing technique, so it’s important to do your research and get as much education as possible before you begin. The biggest risk of trading options is that the stock may decrease in value; if this happens, you will lose your money.

Cryptocurrencies

Cryptocurrencies are a fairly new, yet rapidly growing investment option. Bitcoin may be the most well-known, but there are countless other cryptocurrencies that you may want to consider investing in.

A cryptocurrency is a digital currency that is not backed by the government, and they can be bought and sold at cryptocurrency exchanges. They are rapidly becoming more popular and mainstream in society, and with some retailers now letting you pay for goods and services with cryptocurrencies, the market for investing in them is growing even further. However, they can be quite a risky investment due to the fact that they often fluctuate wildly.

Annuities

Annuities are often a popular investment option with people who are looking to invest in order to grow their retirement savings. Buying an annuity means purchasing a contract with an insurance company in return for periodic payments, which can sometimes begin immediately or may begin on a specific date in the future.

Depending on the investment, these payments may last for a pre-agreed time period or for the rest of your life. Although annuities are quite a low-risk investment option that can provide a good supplement to your retirement savings, it’s important to bear in mind that they are also quite low-growth.

Certificates of Deposit

If you are looking for a very low-risk investment option, a certificate of deposit (CD) is a good choice. With this option, you will give a certain amount of money to a bank for a pre-agreed time period. Once that time period is over, you will be returned the principle plus a certain amount of interest.

The longer the time period, the more interest you will earn. There are no major risks to this investment option and they are typically regulated and insured, meaning that your money will be covered even if the bank collapses.

Commodities

Commodities refer to physical products that you can purchase and invest in. There are various different commodities to choose from including precious metals such as gold and silver (which are some of the most common investments), energy products like solar power, coal or oil, and agricultural products such as barley and corn.

Investing in commodities can be an ideal way to diversify your portfolio. However, the risk with this type of investment is that the price of the product may be reduced quickly due to external events such as political actions or global crises.

Forex

The foreign exchange (Forex) market is currently the most traded market in the world. Trading Forex is becoming increasingly popular and involves the purchasing of one currency while simultaneously selling another. Traders attempt to make a profit when buying and selling currencies by considering the direction that a certain currency pair may take over time. As with commodities, the risks of Forex trading involve currency pairs losing value due to external political events and more.

Investing Tips

Now that you have a better idea of the different types of investment, it is a good idea to conduct more research into the ones that appeal to you the most before you get started. You can use the aforementioned service like Wealth Simple which is designed to make investing easier for everyone, and working with a financial advisor is a good way to put together an investing plan that works well for you.

When it comes to growing your wealth through investing, there are lots of different investment types to choose from. Some are a more suitable option for beginners while others require you to have gained more investment experience before you can get started. Each type of investment offers different levels of risks and rewards, and aspiring investors should consider each type of investment carefully before choosing one that is most aligned with their goals.

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