Your Money Vehicle will comprise a whole host of investment vehicles—over time! As you further yourself down your financial journey, investing will become a big part of what ultimately propels you forward toward your goals. And knowing some of the basics of the investment vehicles that will get you there is incredibly important.
While many of us likely know a little bit about stocks and bonds, different types of bonds, and even some investment strategies, the financial space is rife with increasingly detailed and granular financial instruments. While, yes, you can invest in stocks, there’s a whole world of equity investments and debt securities out there that you may have never even heard about!
While we’re not going to get too deep into the weeds, we will cover some stock market basics and give a broad overview of some of the more common investment vehicles. This includes long-term investments, short-term investment options, and others that will help with building an investment portfolio.
If you want to improve your understanding of securities, and add this knowledge to what you know about financial assets and returns, read on!
Popular investment vehicles: The basics
As discussed, the list below contains some of the more popular types of assets on the market. You may or may not invest in them (it’s not a bad idea to explore them all with portfolio diversification and asset allocation in mind!), but knowing the gist of what they are and how they work may be helpful going forward.
Stocks are shares of ownership in a company. There are many types of stocks, but what investors should know is that if you own a share, it means you are a part owner of the company — and may be entitled to dividends (shares of the company’s profits). Stocks tend to be riskier investments than other asset types, but they also tend to have the most potential for growth and appreciation.
Bonds are a type of debt security. That means that when you buy a bond from a business or a government, you’re actually loaning them money — in return, they will pay you back regularly, with interest. That makes bonds less risky than stocks. In fact, U.S. government bonds, often called Treasuries, are generally considered the least-risky investment on the market. That’s not to say they’re risk-free, however.
ETFs, or exchange-traded funds, are sort of like a basket of investments. They trade like stocks on exchanges, and investors can buy shares of ETFs. But they don’t comprise one stock or bond, instead, they’re a mixture of many assets and securities. There are ETFs focused on all sorts of things, too — for instance, there are ETFs that contain stocks from all sorts of companies in the aerospace sector, and ETFs that contain bonds from municipal governments.
ETFs can be useful to investors looking for a diversified, easy-to-purchase investment.
Mutual funds are similar to ETFs in many ways, and are also a mixture of different investments. But mutual funds themselves are actually companies. They pool money from a bunch of different investors, and a manager invests their money for them, and makes changes accordingly to try and generate the best returns. The fund sells shares of itself to investors.
Investors can also buy commodities, which are anything that can be bought or sold. Gold is a commodity. So is coffee. And investors can buy into those commodities if they wish. But it’s a bit different than buying stocks or bonds — and commodities trading can be risky. If you wish to trade commodities, it may be a good idea to speak with a financial professional first.
Alternative investments are similar to commodities, and can include almost anything outside of the “mainstream” assets. It may be bottles of wine, works of art, or even cryptocurrencies. These tend to be very risky investments, so again, if you want to buy them, speak with a professional for guidance.
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