| 21 THINGS YOU CAN INVEST YOUR MONEY IN: Below is a list of categorized investing opportunities with short explanations. Each has its own risk and reward with many ways to invest. We recommend researching different areas before you invest your money. A diversified financial portfolio can spread risk for long-term investing. In the short-term, focused investing works well for traders or a quick gain. |
| ANNUITIES |
| An investment that is somewhat safe, although the various annuities can be confusing. Basically, an annuity is offered by insurance companies, banks, and other investment brokers. They require a larger amount of money put into an account. Every year you can pull out of the account (without penalty) a certain percentage of the money at a fixed interest rate. This allows the initial investment to incur interest over the years, until a set date when the rest of the money can be withdrawn. Some plans don’t allow the money to transfer after your death. This means when your gone, the annuity money is owned by the company. |
| BOND |
| A bond is basically when you loan money to a government or company, with them agreeing to pay you a set interest rate. It’s kind of like you becoming a bank. A bond pays interest for the term that it’s active, meaning that the longer you have your bond, the more interest you’re going to collect. Once bonds reach their maturity date, the bond expires, and you get the initial money back plus interest. Some bonds pay you a set amount each year, and some bonds fluctuate payments over time. Generally, bonds are safe, especially from top-rated companies, governments, and countries. However, some are rated as Junk Bonds, because they have the likelihood of you not getting your money back. When it comes to an entity filing for bankruptcy, the bondholders, and other creditors are usually the ones paid first. This makes them a safer investment than stocks (since stock owners usually don’t see a thing after a company goes bankrupt). |
| CERTIFICATE OF DEPOSIT (CD) |
| A type of investment that requires you to invest money for a certain length of time and guarantees the same rate of return (interest) for that entire time. They are usually found at your local bank, require a minimum deposit, and are government-guaranteed. |
| COLLECTIBLES |
| Objects such as art, jewelry, baseball cards, and antiques that people buy in the hope that the objects’ value will increase. This type of investing is often dependent on fads, not very liquid, and finding people willing to buy your collectible. This makes them a riskier way to invest, but can be very lucrative. |
| COMMODITY |
| A raw material or tradable item that can generally be further processed and sold, i.e. metals, wheat, coal, sugar, coffee, lumber, agricultural products, etc. These can be bought various ways, but are typically only done by professionals, or people in the industry. |
| CONVERTIBLE |
| Any investment that can be changed or replaced with a different type of investment. Typically, a bond, debenture, or preferred share may be exchanged by the owner for something else, like common stock or another security, usually of the same company, in accordance with the terms of the issue. These are not standard investment vehicles and are often given as a choice for people investing in a startup or expanding companies. |
| CRYPTO-CURRENCY A relatively new phenomenon built off the currency market. These digitally traded currencies are still in their infancy. Most only hold value because people are willing to buy them. Some places will accept them as payment. But as the writing of this, most cryptocurrencies are just vehicles for trading. Meaning you cant go out and buy anything with them….yet. |
| DERIVATIVES |
| Probably one of the most confusing of all investments. Basically, it’s anything that is valued based upon some other asset. In other words, it derives its value from something else. They can include futures contracts, forward contracts, options, swaps, and even derivatives based on weather data, such as the amount of rain or sunny days in an area. For example – Farmers can sell contracts that allow them to sell crops (say coffee) they haven’t yet grown at a predetermined price. The value of these contracts (what the farmer gets paid) depends on what the underlying commodity does (the going price of a coffee). This means the farmer makes or loses money depending entirely on what the going price is for that crop. Thus, the future crop derives its value from the price that coffee beans are selling on the open market in the future (or whatever date set beforehand). This can be extremely risky because it’s dependent on someone guessing the future properly, and at the right time. |
| EQUITIES |
| The term Equity in finance typically refers to three things: 1. Another term used for stocks. 2. Ownership interest in a private company. 3. The difference in the price you paid for something, and the current value. When you invest in a private business venture, they will usually give you a certain percentage of ownership into the company, or product, you have invested in. This is called offering you “equity” in the company. You can also build equity in certain investments like Real Estate. For example, let’s say you pay 100 million for a house, and after 5 years it’s worth 200 million (This means you have 100 million worth of equity in the house (200m – 100m = 100 million). Now obviously you don’t have cash in hand, and the equity can change since the price of everything goes up and down over time. However, some banks will give you a loan on the amount of equity you have in your home (typically 70 – 80%). |
| FOREIGN CURRENCY |
| If you have ever traveled to another country, you probably had to change your money over to the currency of the place you are visiting. The rate you buy or sell your money changes regularly and varies from country to country. This is the exchange rate. As an investor, you can trade money pretty much just like stocks in your broker account, or through a financial manager. You can also buy various currencies from banks, and even from the country, you visit. Generally, you can bring up to 10,000 US Dollars cash (or similar value, depending on the countries laws) without disclosing it to the authorities. Trading currencies hold moderate to high risk, depending on your time frame and which countries money you own. |
| FUTURES |
| Investments where individual pledges to purchase or sell certain commodities at a future date for a certain price. This is often used to get a lower price on commodities that will be resold later for a higher price. For example, let’s say you think oil is going higher in six months, so you promise to buy 100 barrels in six months, but you pay the price it’s selling for today. Basically, it’s trying to guess what the price will be in the future and hoping to sell it then at a higher price. This is also risky and like a derivative. |
| INDEX |
| An index is a grouping of different investments that cover the same items. Common indexes are precious metals, diamonds, industrials, and stock exchanges. These items are often lumped together and sold as a group, called an index fund. Indexes can often be sold just like stocks. Index funds include parts of the market like Nasdaq, or Dow, or in technology like microchips, and even a group of stocks from a certain country. These tend to go up and down along with the overall economy (or how similar things in the group are doing). Most index funds are somewhat safe and more stable than just buying one company in the industry. But single stocks or commodities can provide higher returns. If you choose the right one at the right time! |
| IRA |
| Individual retirement accounts are basically investments that are not taxed like regular income or capital gains tax. The government allows you typically to buy these through intermediaries like mutual funds, insurance companies, and banks, or directly in stocks and bonds through stockbrokers. The reason people buy these is so they can keep the investment, and not pay taxes on them until they retire. Or a Roth IRA which allows you to pay taxes upfront and then tax-free in retirement. |
| MONEY MARKET |
| These are very safe and are almost always guaranteed by the government (meaning your money is safe, and if something goes wrong the government, or insurance, will give you your money back). A money market is basically the interest you get on money in savings or brokerage accounts. It is a type of mutual fund that invests in different loans and financial services while attempting to keep the initial investment low. Interest is usually very low and is paid to you overtime at a set percentage rate. They are easy to remove the money from and are a good place to store money until you decide to invest it. |
| MUTUAL FUND |
| An investment that allows individuals to invest their money into a previously created diverse portfolio that usually contains a variety of stocks, bonds, indexes, and other investment opportunities. These are run by managers, from various companies, who are usually paid a percentage of the income generated. Typically, around ½ – 1 percent, although it can run higher on more actively managed funds. Investors in mutual funds are usually considered to own shares in all stocks included in the fund. Today there are thousands of these and are considered moderate in risk. |
| OPTIONS |
| An agreement that conveys the right, but not the obligation, to the option holder to buy or sell a particular security at a stipulated price within a stated period. They are kind of like futures (but more complicated), where people agree to buy or sell something (typically a stock) later at a certain price. Shorting means you think the prices will go down. Going long means you think the price will go up. People can go long or short on a stock as well. Typically only professional traders use options. |
| PRECIOUS METALS |
| Precious Metals are also known as commodities, but Gold and Silver are the commonly traded vehicles and are often put into their own category. You can buy Gold and Silver physically in bar or coin, pretty much anywhere around the world, typically at going rates or a little above. You can also trade it on open markets around the world in various forms of specialized trading vehicles. |
| REIT |
| A Real Estate Investment Trust is an organization or investment company, which focuses its holdings on real estate investments. The amount of interest (yield) paid to investors is generally higher than other investments. Since REITs are required to distribute as much as 90% of their income. It’s basically a mutual fund where people manage a bunch of properties, or real estate loans, and all the profit that is made from rent (or change in interest rates) is paid back to the investors. Some are extremely risky, while others are more stable. They are very popular because they can pay a large percentage back through dividends with moderate risk. |
| REAL ESTATE |
| Buying property in the form of land or buildings. Real Estate is a very sound investment, but not as liquid (meaning easy to sell) as other investments. This means it can take a long time to sell a piece of property. Owning a piece of property, house, or commercial building also requires more people involved in the buying, managing, and selling process. It also requires more money to maintain, pay property taxes, insurance, etc. However, with higher risk, comes higher reward. If all else fails, you can always live in it or use it for your new business. |
| STOCK |
| A stock is a type of investment that signifies partial ownership of a publicly-traded company or partial ownership in an S Corporation. Each share of stock is an equal portion of ownership in a company. When a company goes from being private to public, it basically breaks the company up into millions of parts (called shares). Then puts a set price on each share, say 10 dollars. A portion is kept by the founders, board members, employees, beginning investors, banks, etc. Then, a set amount, say 30% is put out for the public to buy on the “stock market”. As soon as the market opens, people begin to buy and sell the available shares. The price instantly goes up and down depending on what people are willing to pay or sell their shares for. Every day the stock market is open, people can buy shares (if people are selling) or sell shares (if there are buyers). The owners of most stocks also have voting rights in the company. However, when a company goes bankrupt, the bondholders and preferred shareholders get paid first, which makes owning stocks a little riskier. Stocks and Bonds are the two most popular ways to invest money, and often considered the safest place to put money (outside of gold and your own house). |
| YIELD (Dividends) |
| Yield is the amount of money a stock or bond pays on a regular basis. We call these dividends for stocks. A dividend is a set amount of money, typically paid for each share you own in a company (paid 1 – 4 times a year). It’s often the larger and more mature companies that pay dividends (as well as REIT, ETF, and other entities). Newer and fast-growing companies usually do not pay a dividend. A company can stop paying them at any time or even change the amount. For bonds, the effective interest rate is also known as yield. |
