This is simply a brief overview of popular types of assets and how they fit in investor's portfolios according to their investment strategy. On the long run, knowing more about how different categories of investment work is crucial for your financial literacy and will allow you to manage your money effectively, so it is important to start as soon as possible.
While you are looking for a broker to invest, you will notice that most of them are offering similar assets, such as ETFs, stocks, commodities, etc. Each of these assets have their pros and cons, and your main goal when choosing a broker is to identify which one offers the assets that match your investment strategy and ideal portfolio. You shouldn't restrict a portfolio to one single type of asset, as different assets will offer you more variety and contribute to the health of your financial portfolio.
Since it is possible to invest in several assets simultaneously in most brokers, you will be able to capitalize on your gains while maintaining your portfolio balanced, which minimizes your risk. Like the old saying, you don't put all your eggs in one basket. By diversifying your portfolio, you will risk less and potentially profit more.
Here are a few types of investments that will help you get started with personal finances or help diversify your portfolio.
Investing in Bonds
Bonds are fixed income instruments used by governments or private companies. Basically, they are instruments that allow companies or the governments to borrow money from investors with fixed interest rates, raising their funds for some specific project. Bonds are usually issued with a deadline, so you would be earning interest within a certain amount of time, until the bond expires, and your initial investment is paid back with interest, which can compound over time.
Some types of bonds, such as corporate or government bonds, receive a rating from credit agencies. With this rating, it is possible to understand the quality of these bonds, that is, how likely are you to receive your money back. You will notice that the bond ratings frequently fall into two major groups: the investment grade, which often has high ratings, and the high-yield bonds, which are often lower rated. As always, the higher the returns, the riskier the investment, so use the ratings to understand how the bonds fit into your portfolio.
As bonds are typically less risky than other investments, they are regularly used for financial planning in retirement accounts. If you are considering an investment that allows you to safeguard your money for your financial future, keep the bond investments in mind.
Investing in Stocks
Stocks, or shares, allow investors in the stock market to be part of a publicly traded company, including some of the biggest companies in the world, such as Google and Amazon. With them, you can invest in the company and earn dividends, or simply buy the shares and sell them for a higher price. Corporate news, earnings reports and macroeconomic events allow you to understand the company better for a long-term investment, or simply to buy and sell shares as their market prices get lower or higher. This asset class will suit those who enjoy reading corporate news and delving into the industry of their choice. It's essential to use fundamental analysis and keep informed while investing in stocks.
If you are reading this from the United States, it shouldn't be hard for you to have direct access to the US stock market. It is quite likely that your bank allows you to buy or sell stocks directly in the stock market, but that might not always be the case. You can always choose a broker for your stock portfolio if your bank doesn't allow you to invest in the stock market directly.
Investing in ETFs, or Exchange-Traded Funds
ETFs or Exchange-Traded Funds are an adequate alternative to investments in stocks and require a bit less effort when it comes to staying up to date with the market. ETFs are basically a collection of shares from a certain market or industry, available as a single asset. You can consider ETFs to be investment funds with positions in the largest companies of an industry or country. ETFs have a lower degree of risk as well, since they are comprised of a balanced stock portfolio. Investing in ETFs might be a good idea if you'd rather not spend a lot of time researching market news and changing portfolios frequently.
Investing in Cryptocurrencies
While cryptocurrencies are certainly not for the faint of heart, you can dedicate a minor part of your investment portfolio to them if you already have some experience with investments. Although a few brokers are already catching up and offer cryptocurrencies, you will likely need to open an account in a cryptocurrency exchange in order to buy cryptocurrencies and use them as assets.
This was just a brief review on the most types of investment assets available in most brokers. You shouldn't use this guide as some kind of advice about how to invest your money, as there are many variables to consider before starting an investment. In any case, I hope that this information will be useful for you when you start investing.
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