Managing an investment portfolio can feel overwhelming, especially if you don’t have any financial experience. But it doesn’t have to be so. Although you cannot expect to get the same result as Warren Buffett, you can do well for yourself by learning more about different financial vehicles.
The majority of investment experts suggest that you have a well-diversified portfolio. That way, even if one of your investments starts declining, you have other assets to fall back to. Also, when purchasing financial instruments and real estate, you need to enter the market when prices are low and sell when they’re high.
If you’re creating your first portfolio, here are the 5 most common types of investments you should consider using.
Stocks are an unavoidable part of the US financial culture. They were featured in so many movies over time, and they are the first thing people think of when we mention investing.
Back in the day, most people would buy stocks expecting dividends. These are periodic payments that are issued to stockholders based on the company’s profits. However, as the economy changed, most businesses would start using this profit to reinvest in the company.
Nowadays, if you want to make money out of stocks, you would have to focus on price differences. Like with all investment vehicles, you should buy them while they’re underpriced and sell them when they become overpriced. Among others, stocks are a good indicator of a company’s potential.
Bonds are the stock’s little brother. They have been around for quite a while and are classified as debt instruments. A company or an institution issues a bond to an investor, and they commit to purchasing these bonds at a set date in the future. The company also pays a percentage interest on these bonds, which serves as a profit for the investor.
Bonds can be a nice addition to your portfolio. They are especially great for retired people and other investors who want to receive a set amount of money in the future without worrying about price fluctuation. Most of them are regarded as very safe, especially municipal bonds. However, they don’t yield the same profits as stocks.
3. Real estate
An incredible thing about real estate is that it can be utilized in a plethora of ways. Most people make money by renting their properties, but you can also invest in construction projects, flip houses, list them on Airbnb, etc.
Some people see real estate as a great long-term investment that can be carried over to children. If you live in an area with lots of apartments and high rents, you can make lots of money over time by simply purchasing these properties and leasing them.
Another good way to make money is through a reverse mortgage. Keep in mind that this investment type is not ideal for everyone as you would eventually have to forfeit a family property. If you’re interested in this kind of business, you should read a few reverse mortgage reviews to get a better grasp of the market and participants.
We know very little about cryptocurrencies. Despite the fact they’ve been around for a few years now, a lot of investors don’t understand how they actually work. This can be a bit tricky as you don’t want to put your long-term savings into something as flimsy as that.
Nevertheless, regardless of all the drawbacks, some people have made a lot of money off of these assets. Truth be told, cryptocurrencies are not for squeamish investors. They can make you enormous profits, but you might also lose all your money. Anyway, if you want to “make it big” in a short amount of time, cryptocurrencies are probably the best way to do it.
The term commodity refers to four main types of material/products: livestock, metals, agriculture, and energy. Each one of these can be further broken down into smaller categories.
You can buy or sell commodities on financial markets, similar to what you would do with stock and bonds. However, when purchasing specific financial instruments, investors usually do this not to gain possession of commodities themselves but instead to make a profit from an underlying asset.
The most common commodity vehicle is futures. When you purchase futures, you commit to purchasing an asset at a future date and at a set price. Depending on the price fluctuation of the underlying asset, you can make or lose money.