Types of Investments — A Breakdown

Investing your hard-earned money allows you to secure your financial future, plan for retirement, and account for any unforeseen emergency. However, diversification is critical; a mixture of investments mitigates the impact of any one investment’s decline in value. When done correctly, you can create an inflation-proof investment plan. So, what are some of the investments you should consider?

Bonds

Think of bonds as a loan where you, the lender, provide money to a borrower in return for them paying you back what they borrowed plus interest. Bonds are widely regarded as fixed-income investments because they provide a guaranteed rate of return. For this reason, they are considered very low-risk.

Bonds are issued by state and federal governments, municipalities, and corporations. You are lending money to these enterprises and government entities by purchasing the bond. They then use the money to fund projects and run their operations. Once the bond matures, you receive your initial investment plus interest.

Mutual Funds

Mutual funds pool money together from multiple investors. A mutual fund manager then buys multiple investments on behalf of those investors. Some mutual funds invest in stocks, real estate, corporate and government-back bonds, short-term debt securities, and near-term investments like commercial paper and United States Treasury bills.

In many ways, mutual funds are already diversified, as the risk is spread out over multiple investments. However, some mutual funds fluctuate in value more than others. Money market funds and bond funds are considered low-risk investments compared to stock mutual funds, as the value of stocks fluctuates more.

Stocks

When you purchase company stocks, you’re essentially purchasing equity in the company that issued the stock. Each stock is commonly referred to as a “share.” These shares entitle you to a portion of the company’s profits and assets and, in most cases, give you voting rights.

The more shares you own, the larger your proportion of ownership in the company. Stocks are considered higher-risk investments compared to bonds. However, over time, stocks have outperformed bonds in terms of returns. The key is to stay committed to the investment.

Real Estate

There are a couple of ways to benefit from real estate investing. You could purchase property and wait as the market drives the price upward. You could renovate the property, increase its value, and then sell it or rent the property to tenants to generate residual income.

Real estate has always been considered a must-have investment for families. The dream of owning your own house or property is one many people share. However, this investment isn’t without risk. With rising interest rates, the cost of borrowing has increased for homeowners, often leading to a decline in real estate values as fewer buyers enter the market.

Commodities

Investing in commodities is typically associated with buying precious metals like gold, silver, platinum, or even palladium. Other commodities to invest in include coffee, corn, wheat, cattle, soybeans, oil, etc. However, for the most part, people stick with metals like gold and silver.

Gold is seen as a hedge against inflation, as its value is driven by market demand. Silver is similar. These could be considered less risky than the other commodities listed. You should only purchase commodities if you thoroughly understand the market conditions determining their prices.

Diversification, Diversification, Diversification

In the end, it’s all about diversification. A diversified portfolio of investments will ensure that you’re not beholden to the fluctuations of any one investment. Remember the old adage, “Don’t put all your eggs in one basket.” The same rule applies to investing. For more information on investments reach out to Delta Capital Management and Sean Casterline.