Seven Different Types Of Investments

Investing can be quite intimidating when you look around at all the different types of investments. But it’s something that all of us should be doing at some point in our lives, especially with bank account interest rates sitting really low. UK inflation has risen to 7% which is the highest rate it’s been in 30 years. So if your money earns you less than 7% interest then you’re actually losing money. But investing could be the way forward.

There are so many different types of investments but I’m going to talk through seven of the biggest ones. A quick disclaimer now: I am not a financial advisor and you should always seek financial advice before you start investing. What’s right for one person and their situation won’t be right for everyone.

Bonds

When you buy a bond you tie your money in for a certain length of time. This can be anything from a year upwards. With a bond, you are essentially lending your money to an entity for a period of time. This can be a business or government entity, and when it’s lent you get interest back on your lending. After the bond matures you’ll get your money back plus a fixed amount of interest agreed when you put your money in a bond.

Bonds tend to have lower interest rates than say bonds, but they are lower risk. And for most you get a set interest rate before you tie your money up. When I sold my flat I put all of the money that we had for a deposit on our house into a bond to make some interest over the year before we bought.

Different types of investments: Mutual Funds

A mutual fund is when a pool of different investors’ money is invested across a number of different companies. A mutual fund can be both passively or actively managed depending on where you get your mutual fund from. If it’s actively managed the fund manager will pick which companies the money is invested in. If actively managed funds can be invested in a whole array of different areas. Whereas passively managed funds- also known as index funds- tend to cover things like the FTSE100 or FTSE500 (top 100 or 500 companies in the UK).

Much like stocks and shares, mutual funds do carry risk. But the risks can be lessened as the investments are diversified and not all in one company or business. Mutual funds are valued at the end of the trading day and is simply the net asset value of your investments.

Exchange- Traded Funds (ETFs)

Exchange-traded funds (ETFs) are similar to mutual funds in that they’re a collection of investments that track a market index. But they’re purchased through a fund company and they trade throughout the day, on a stock exchange. This means that the value can change, sometimes drastically, during the trading day.

Different types of investments: Stocks

This is probably the one you’ve heard most about. Where people invested in Facebook or Apple before they took off and made millions.

When you buy a stock you’re buying a small stake in a publicly traded company. And many of the biggest companies in the world are publicly traded so you can buy stock in them. The hope is when you buy a stock you get a good low price and the price goes up so you can sell it for a profit. But the risk is that the price of the stock can go down and you can lose money. Unlike mutual funds or ETF’s you’re investing in a single company and not a range.

With some stocks you may be entitled to dividends which is a distribution of some of the company’s earnings paid to shareholders. Dividends may be paid out as cash or in the form of additional stocks. I use the app Freetrade to buy individual shares, but it’s not a massive part of my investment portfolio and more something I do for fun.

Your pension

You may not know it, but if you have a pension through your employer, or privately you’re already investing.

Your pension isn’t technically a separate category of investment as it’s similar to those above. But if you’re employed it allows you to invest pre-tax through your pay check, and your employer will also add a contribution alongside yours.

The risks for pensions investments are the same as any other form of investing in companies, funds or stocks.

Different types of investments: Property

Whenever I think of wealthy investors I think of people who have investment portfolios. It’s something I’d love to have one day, but currently I think I’ll just be happy enough paying off my own mortgage.

There are many different investments you can make when it comes to property. For example, you may like the look of using the BRRRR Method (Buy, Rehab, Rent, Refinance, Repeat) which involves finding a distressed property, flipping it, renting it out, and then getting a cash-out refinance on it. This can then be used to fund further properties. In addition to this, you could buy to rent out and keep for the long haul, or you could invest in property and simply live there yourself.

Alternatively, you can purchase shares in real estate investment trusts (REITs). These act like mutual funds wherein a group of investors pool their money together to purchase properties.

Commodities

There are loads of other things you can invest in, and commodities refers to tangible things such as gold, crude oil, cars, or even handbags.

It’s worth considering diversifying your portfolio with less traditional assets like property, commodities, and even specialised investments such as pensions. A comprehensive understanding of these diverse options can help you build a robust investment strategy. For unique investment opportunities, you might want to explore London Cask Traders.

Anything that you can physically buy as an investment to sell on at a later date. If I had the money I would invest in jewellery as diamonds and gold tend to keep their value, but I know Luke would love to invest in cars. If you have £500,000 to drop on a limited edition car you may find in years to come its worth double the value, if not more. The same goes for sort after handbags and even limited edition Pop Vinyl figures. It’s what I tell myself every time I buy a new Funko Pop, it’s an investment!

Which of these different types of investments do you have?

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