Types of Investments
The bulk of your wealth should be coming from at least some of the following types of investments:
Types of investments 1 - Deposits/Fixed Term Deposits
This type of investment is used by a large proportion of the population eg. bank accounts. The appeal is easy access and the very unlikely event of losing your capital. Unfortunately very little income or capital growth takes place simply because of the low interest rates.
Another important point to bare in mind is the devaluation of your particular currency which will eat away at any gains made especially if cash is held on deposit in the long term.
For this reason alone it is not good practice to leave large deposits in this type of investment.
Types of investments 2 - Bonds
The term bond includes any security that involves debt. When you purchase a bond you are actually lending money to a company or the government. In return you will receive interest and eventually your capital sum. Bonds are generally safe, however for this reason returns are small. Bonds are for people who want a higher return than a cash deposit would bring but still want a low risk investment.
A much larger return can be realised by going offshore.
Types of investments 3 - Stocks
Stocks, sometimes called shares or equities represent part ownership of a company. Unlike bonds, when you purchase a share in a company you are not guaranteed your money back. Shares fluctuate in value on a daily basis and therefore it is best to invest longer term (say 5 years and above) However the potential returns are far greater than bonds and for this reason stocks must be considered a medium risk in general.
Some companies elect to pay profits direct to their shareholders in the form of a dividend rather than investing the profits back into the company. These dividends can be a tax efficient way of receiving income.
If you would like to invest in stocks but dont have the necessary experience, time or inclination, here are some trading services which I have found to be very good.
Types of investments 4 - Managed Funds
When you buy units in a managed fund you are pooling your money with other investors which enables you to buy into a large number of different asset classes, eg. fixed interest deposits, bonds, property, equity etc.
Each fund is managed by a fund manager who decides what percentage of the fund should be invested into which asset class. Managed funds are popular because of the low cost and risk diversification. They are suitable for new investors, people with small initial deposits and anyone who wants to spread risk over a number of asset classes.
Multi millionaire Steven Sutherland is the UK's leading authority in ISA Trend Investing. With ISA Trend Investing you trade investment funds (not stocks) using an ISA, a SIPP or both, to achieve tax-free index beating returns. By simply copying what Steven does you can very quickly build up a very profitable portfolio.
I have negotiated a reduced price for Stephen's book, 'liquid millionaire', if you are interested in this type of investing. It will also introduce you to his services(highly recommended reading)
Types of investments 5 - The Foreign Exchange Market (also called currency, forex or FX)
The Forex market is the largest market in the world, frequently trading $3trillion per day. It is an extremely liquid market that trades 24hours, 5 days per week. A currency trade is the simultaneous buying of one currency and selling of another one. An investor's goal in Forex trading is to profit from foreign currency movements. The most commonly traded currencies are the EUR/USD, USD/JPY, USD/CHF and GBP/USD.
Every well rounded portfolio should contain property, even if it's just your own residential home. Property is an excellent asset class since it increases in value over time. It does however fluctuate in value in the short to medium term and therefore it is best seen as a long term investment. You can also earn rental income from your tenants as an added bonus and indeed if you buy the right property you may never have to make a mortgage payment from your own funds.
An excellent resource I use is The Property Tycoon Forum. Sign up for your Free Trial Here.
You can also get more information about property from my buying rental property page.
Types of investments 7 - Gold
Gold, that is physical gold should be thought of as an insurance policy against poor economic conditions rather than an investment vehicle. Having said that we are in a bull market at present (2009) and it is highly likely you will make money if you invest in physical gold today. In my opinion you should have 5-15% of your total assets in physical gold. A good source of physical gold is Bullionvault.
Types of investments 8 - Options/futures
Options and futures are generally at the high risk end of investments with a corresonding possibility of a high-reward. They are much more speculative in nature and as such new investors should focus on building a sound investment strategy before speculating. However there is nothing to stop you using a good quality paid service which uses the knowledge of an industry expert. Again, I highly recommend Moneymappress
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