When it comes to investing, there are a wide variety of products available that can help you achieve your financial goals. With so many different types of investment products available, it can be challenging to know where to start. Let’s cover the basics of some of the most common investment products.
- Stocks: When you buy a stock, you are essentially purchasing a small piece of ownership in a company. Stocks can be volatile, meaning that their value can rise and fall quickly, but they can also provide strong long-term returns. Some investors prefer to buy individual stocks, while others choose to invest in mutual funds or exchange-traded funds (ETFs), which allow you to own a diversified portfolio of stocks.
- Bonds: Bonds are really just loans that you make to a company or government entity. In exchange for your loan, the borrower pays you interest, and at the end of the bond term, they repay the principal. Bonds are generally considered to be less risky than stocks, but they also tend to offer lower returns.
- Unit Trusts: Unit trust is a type of investment fund that pools together money from many different investors to invest in a range of assets such as stocks, bonds, and other financial instruments. When you invest in a unit trust, you’re essentially buying a portion of the fund, known as a unit. The value of your investment will be based on the performance of the underlying assets.One of the key advantages of unit trusts is that they offer investors the ability to diversify their investments. By investing in a unit trust, you can gain exposure to a broad range of assets, which can help to spread your risk and reduce the impact of any individual asset’s poor performance. Unit trusts are also professionally managed, which means that you don’t need to have a lot of knowledge or expertise to invest.Another advantage of unit trusts is that they offer liquidity. Unlike some other investments, such as property or fixed deposits, you can typically buy or sell units in a unit trust relatively easily. This means that you can access your money quickly if you need it.
- Fixed Deposits/Term Deposits:A fixed deposit, also known as a term deposit, is a type of investment where you deposit a certain amount of money with a bank or financial institution for a set period of time, typically ranging from a few months to several years. In exchange for your deposit, the bank pays you a fixed rate of interest for the duration of the term.One of the main advantages of fixed deposits is that they offer a guaranteed return on your investment. Unlike other investments, the interest rate on a fixed deposit is fixed for the duration of the term, which means that you know exactly how much you’ll earn. This can make fixed deposits a good choice for those who are looking for a low-risk investment with a predictable return.Another advantage of fixed deposits is that they are generally considered to be very safe. When you deposit your money with a bank or financial institution, it’s typically insured by the government up to a certain amount, which means that even if the bank were to fail, you would still be able to recover your investment.
- Exchange-Traded Funds (ETFs): An ETF is similar to a mutual fund in that it’s a collection of stocks, bonds, or other investments. However, ETFs trade on stock exchanges like individual stocks, and their prices fluctuate throughout the day. ETFs are a popular choice for investors who want to buy and sell investments quickly and easily.
- Real Estate: Real estate can be a great investment for those who are willing to take on the risks and responsibilities of being a landlord. You can buy rental properties and earn income from tenants, or you can invest in real estate investment trusts (REITs), which allow you to own a portfolio of real estate properties without having to manage them yourself.
- Commodities: Commodities are physical goods like gold, oil, or agricultural products. When you invest in commodities, you’re essentially betting on the price of these goods rising or falling. Commodities can be risky investments, as their prices can be influenced by a wide range of factors including global events, weather patterns, and geopolitical tensions.
I hope you are in a better position now than you were at the start of the blog, in terms of understanding the various investment terms. No one investment vehicle is superior to the other and it all depends on what your investment goals, risk appetite and investment horizons are. Refer to last week’s blog for a more comprehensive look at factors an investor should consider before investing.