Types of investments

If you are a newcomer to the world of investing, you may be overwhelmed by all of the terms and new information that is suddenly thrown at you. However, it is important that you take the time to sort out what each kind of investment is, and whether it is a good choice to meet your financial goals. Knowing the different types of investments can help you also understand what they can and cannot do. Here is what you need to know about different types of investments-

• Stocks-One of the most crucial things to understand about stocks, is that when you purchase them, you become a part owner of the business. This type of ownership should be taken seriously, since it entitles you to receive any profits (dividends) that the company gives out and it allows you to vote at a shareholder's meeting, if you own a significant portion of the stock. However, you should understand that while stocks can make you some big money, they can also be highly volatile. In fact, stocks are so volatile they can actually go and up down, from day to day. It is also crucial to understand that stocks carry a high amount of risk, and there is no guarantee that the stock will pay off in a big ways. The reality is that many stocks do not even pay dividends or ever increase in value. However, the upside is that when comparing stocks, to other investments, they have a much higher potential for a bigger return. Of course, while there is a price for this potential, if you can assume the risk, you can reap big rewards from investing in stocks.
• Bonds-This type of investment is also known as a fixed income security. Generally bonds are based on debt. This means that when you purchase a bond, you are lending your money either to the government or a private company. The bond works much like a loan. The investment into a bond means that you will receive a certain percentage of interest and at a fixed date, you will get your money back. The major benefit of using bonds as investment is that they carry a very low amount of risk. However, this security also comes at a price, since there is very little risk; there is very little potential on the return. This means that the rate of return is much less then other types of investments.
• Mutual Funds-This type of investment is usually a portfolio of stocks and bonds. If you choose this type of investment you are putting your money in with several other investors. This usually means that you have the resources to pay a professional financial manager, to select the investments for you. Investors should understand that each mutual fund is designed with a specific strategy. The focus of each mutual fund may be vastly different such as: small or large stocks, bonds from companies or the government, stocks and bonds together, international stocks etc. The list is virtually endless. The major benefits of using a mutual fund for your investing is that you usually do not need the time or experience to choose the specific investments. Best of all most investors get a better return, largely due to working with a professional investing advisor, then they would choosing investments on their own.
• Other types of investments-This category is for all other types of investments. This can include but is not limited to, investing in: gold, real estate, options, etc. Generally these are not recommended investment options for beginners. Most of the investments in this category are high-risk and high reward investments. Finally, before considering investing in these areas, it is recommended that any investor receive specialized knowledge about this type of investment.