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Most of us have repeatedly heard the word investment in the media and other sources. There are also many different types of investment available as options. For example, stocks and bonds are valid investment options. People also regard their education as an investment. Cars, electronics, and appliances are sometimes considered investments. Even though purchasing these items can require a sizable cash outlay, the truth is not all of them can genuinely be regarded as actual investment options.
Despite what commercials and the media are peddling, there are only a few basic investment categories. Only items or products bought with the expectation of profit or income, either in the short or long term, are considered genuine investments.
Understanding the Idea of Investment
When thinking about money, most people only think about liquid cash when we should also be considering it in terms of investment. According to Collin Plume of My Digital Wallet, listening to the media, one would believe that inflation is not as bad as we think. After studying market movements, we realize that it is much worse. It, therefore, becomes essential to save money in forms other than liquid cash, where its value is likely to decrease with inflation. Many other investment options are available to willing investors (individuals and corporations). With the invention of different types of cryptocurrency, we have another viable form of investment to invest in and grow the value of our money. The good thing about crypto is that it is a currency that functions independently of normal market fluctuations.
One of the things that stop people from investing in crypto, stocks, or even businesses is uncertainty, but the thing is, there is no form of investment without its inherent risks. When talking about how investors view money, Collin Plume said to Stevie Johnson on an episode of The Crypto Show, “They’re taking chances because they know they have to. They have to take chances to sustain themselves, and especially when you’re young, you have to.”
Categories of Investment
We have various products to consider when looking at investments. These products fall into three major categories.
1. Ownership Investments
These investments are generally known as the most profitable category; however, they are the most volatile. These include:
Stocks
A stock is a part or share of a company. Even though each share represents only a tiny portion, the holder of that share still owns part of the company. Generally, traded securities are valid examples of ownership investments. The main reason investors buy stocks is to gain profits if the value of the shares were to increase. One advantage of owning stocks is that they give the owners a right to share their value. Some other kinds of stocks come with specific responsibilities.
The value of a particular stock is determined by the profit or loss obtained through its purchase or sale. A stock that shows significant potential for profit will be in high demand, increasing its cost per share. This increase in price, by extension, leads to an increased chance of profit if/when you decide you want to sell your shares. There is also the risk of taking a loss should the share price fall below your original purchase price.
Business
Money or capital you use to start a business or run one is an excellent example of investment. However, being an entrepreneur can be very hard, and starting your own business can be extremely risky. You must consider the other assets you will need to invest, like time and effort. Sometimes creating a new product and finding a suitable market to sell it can be successful and profitable. Notable entrepreneurs we have today include Bill Gates and Jeff Bezos.
Real Estate
Real estate is an example of an investment option. Commercial real estate like houses, apartments, and office spaces purchased to be rented out or resold are viable investment options. Houses are multifaceted because they can fulfill a lot of purposes and needs. The monetary value of some buildings increases with time, but they can also decrease.
Precious Objects and Collectibles
Paintings, precious metals, and collectibles like signed sports jerseys can sometimes be regarded as investments when purchased under the condition that the investor will sell them at a higher price. Their value could increase or decrease, depending on the market. Remember that precious metals and gems like gold have fluctuating market values.
2. Lending Investments
As surprising as it might sound, lending money to individuals or corporations is a valid form of investment for several reasons, chief among them being the relatively low risks involved along with modest rewards.
Savings Accounts
A savings account is a form of investment. The investor is essentially lending the bank money in exchange for interest. The bank then loans that money to other individuals and businesses at higher interest rates. Although the profit from a savings account is low, the risks involved are extremely low.
Bonds
A bond is a broad term for many investments like international debt issued, country treasuries, and company bonds. Governments and companies issue bonds programmed to bring back a certain amount of profit to the bondholder after a specific period. The main risk associated with bonds is the issuer of the bond may go bankrupt and not be able to pay off the bond. This bankruptcy would prevent the bondholder from getting their profit. Different kinds of bonds come with risks specific to the bond type, but essentially, they pose lower risks and bring returns lower than those from ownership investments.
3. Cash Equivalents
As the name implies, these are investment options just as good as cash, meaning you can turn them to cash in relatively short notice.
Money Market Funds
Money market funds, a type of mutual fund, are available through banks, brokerages, and mutual fund companies. The fund invests in short-term debt securities like certificates of deposit, U.S. Treasury bills, and commercial paper. The funds must purchase securities that mature in 13 months or less. Government securities may be able to go as long as 25 months before maturing. The fund’s portfolio must have a weighted average maturity of 60 days or less. They function similar to a checking account but pay higher interest rates. However, they are not FDIC insured. With a money market mutual fund, you can access your money by writing a check or electronic funds transfer (ETF). You may be limited in the number of withdrawals you can make, and there may be a minimum dollar amount on checks.
Certificate of Deposit
Certificate of Deposit (CD) is a low-risk banking product where the bank agrees to pay a higher interest rate than available in traditional savings accounts in exchange for the holder of the CD, leaving the money in the account for a specific time.
Money Market Funds
Treasury Bills (T-Bill) are U.S. government debt obligations backed by the Treasury Department, mature in one year or less, and sell in denominations of $1000. T-Bills are considered low-risk and secure investments.
Investing in Cryptocurrency
In the past few years, the idea of investing in cryptocurrency has become increasingly popular among investors and financial experts. There have been numerous debates surrounding crypto investment, particularly about introducing different types of cryptocurrency to the market. Some think that cryptocurrencies like Bitcoin are the possible future of investment, while others argue that the world of crypto is too risky and volatile.
To understand the value of Bitcoin and cryptocurrencies in general in the market, we need to look at how it has been performing over the past few years. The value of Bitcoin has increased exponentially by more than 100% in the past couple of years. More people are becoming increasingly comfortable with the idea of having Bitcoin as a decentralized currency. Several large corporations and entrepreneurs have begun accepting it as a means of exchange.
Making your Money Work for You
According to Plume, people have been led to believe that the rate of inflation and the impact it has had on world economies is not as high as it is. Most people believe that they are safer leaving their money in banks and having the bank pay them a certain percentage as interest. However, most are unaware that the banks trade their money or lend it for much higher amounts, earning considerable profit. The banking system was created to benefit the banks and their owners, whether an individual, family, or corporation. Individuals need to move their money away from the traditional banking system by diversifying and investing in other places.
The investment you choose to make is entirely up to you and will depend on the amount of money you have immediately available. It also depends on your level of risk aversion or how comfortable you are with the prospect that you may lose your investment. You can alleviate some of this by keeping a portion of your funds in low-risk investments. Additionally, consider taking 60-70% of the profits when you invest and placing them in a lower-risk option. Put the remaining in either a mid-level or high-risk investment. Many millionaires and billionaires follow similar patterns and risks with their money.
There are arguments that cryptocurrency could serve as that risky pile. It is important to note that several people have significantly benefited from investing in crypto. Stock options and leverage trades are other risky investments. However, most investors believe that the more time you spend investing, the more knowledge and skill you acquire. Investing is generally a risky venture, but it is virtually impossible to hope to make any profit by playing it safe all the time. Cryptocurrency is fast becoming a reliable form of investment that is not subject to as much inflation as most world currencies.
Conclusion
While it is good to invest in stocks or crypto, it is essential to note that one should never invest in only one kind of asset. There have been times when specific markets, like the stock market, have collapsed, and you had people selling off their assets at ridiculous amounts much lower than the price the assets were initially bought, generating losses for many people. Hence, it is wise to diversify and invest in many places. As stable as it is becoming, even the crypto market is subject to rising and falling. Due to this, it is essential to be careful when picking the kinds of crypto to invest in. There are currently over 3000 kinds of cryptocurrencies in the market. Many of those will not survive, so when considering crypto investments, one should be wise enough to focus on those more likely to survive, like Bitcoin, Litecoin, and Ethereum, which have shown relatively regular degrees of stability. A good investment portfolio should contain assets that are considered safe and include a few wild cards.
If you want to learn more about cryptocurrencies, download the 2021 Cryptocurrency Investment For Free: https://bit.ly/3yzMetg
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