DIFFERENT TYPE OF INVESTMENTS
The word “investment” has become a cliché these days with its overuse. Although the terminology has devised for refereeing to a stock or a bond however, people use it in a much broader perspective. For instance, making investment in academic education, real estate and profitable business, however commerce has classified all, the pool of investments into three major categories.
Categories of investments:
The three major types of investments include Equity, Debt and Money Instruments.
These are the most precarious but lucrative types of investments. The concept of ownership based investments can be explained by the following examples:
Having stocks are an endorsement of the fact that you own a portion of an entity.Moreover,all marketable securities, from currency swaps to futures, are ownership investments even though its physical substance may not be present. While buying any of these investments, the buyer has a right to a certain portion of a company’s value or a right to opt for a certain action (as in the futures contract).
Entrepreneurship is one of the most challenging investments to opt for because it requires both money and skills at the same time, from creating a product or providing a service to creating a market for its acceptability. Private Equity Firms had been the best at evaluating companies that have potential to grow despite of market conditions, Management teams of private Equity firms are normally former C.E.Os. and Industry leaders of their market niche
Commercial, Residential, Industrial Buildings that you would buy to lease out or repair and resale are also investments. Its value can also be appreciated or depreciated in the future
Lending investments allows a person to be a bank himself. The risk is comparatively lower than ownership, investment leading to a less rewarding adventure. Bonds and savings account are the best examples of lending investments.
Money Market Products (MMI)
Cash equivalent products, such as money market instruments or certificates of deposit (CDs), are principle protected, However they normally have a lock up period anywhere from One week up to 360 days.
Generally,this type of investments are relatively safe, it will solely depend on the credit rating of the issuing Institution though. This type of Investment rates of return is often so low that it doesn’t even reciprocate with inflation. However, the amount of cash a company holds does have a significant value to the company’s overall operating strategy. For Example, companies with large reserves of cash are able to absorb hard economics time when turnover is low or expenses are particularly high. They are not a very prudent choice when selecting them in the perspective of long term investments, such as retiring plans, luxury items or wealth transfers. This type of Investment surely will not create multi-generational wealthhere are some types of cash-equivalent investment types:
Is one of the segments of the market where financial instruments are traded with short-term maturities such as treasury bills, CDs, and commercialpaper are common examples of the short-term debt securities traded in the money market.They are generally safe and reasonably liquid altogether.
In short :
There are three types of investments: Equity ownership, lending and cash equivalents. There is no fourth classification of consumer purchases. The ultimate test is whether there is a possibility to make a return. However, making money through investing requires a tremendous amount of research and evaluating different investments that match your risk appetite.