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PERSONAL FINANCE

Common Investment Vehicles

Investment vehicles are products used by investors with the intention of future positive gains. This can be a low risk, like government bonds or may carry a greater risk like stocks. Choosing to invest in a particular vehicle(s) depends on many factors including the investors knowledge of the market, skills in financial investing, current financial standing, their financial goal and the amount of risk they can take.

Choosing several types of investments in a portfolio helps one minimize risk. For example if investor A decides to invest in stocks, real estate and government bonds and investor B decides to only invest in stocks, investor A will have his investment risk spread across all his three investments. So, if in a given period of time, his stock investment turns up to be a bad investment but his real estate and bonds do well, his bad stock investment will not affect him much because he made positive gains from his real estate and bonds. On the other hand if investor B has a bad year with his stock investment, his loses will be huge because he only holds one investment. It is therefore very advisable for investors to not “put all their eggs in one basket”  but rather invest in several other types to minimize risk.

Ownership Investments

Investors who goes into ownership investments own specific assets they expect to grow in value over a period of time (short/long term).  An ownership investor may invest in stocks, real estate, businesses or precious objects (eg. gold).

Stocks: Also called shares or equity gives the investor a stake in a company. As a part owner the investor may profit by selling their share of the company for a higher price than they bought it or receives part of the company’s profit as dividend.

Real estate: Real estate investors may rent their properties or sell them for a higher price for profit. They might buy these structures or build them themselves.

Precious objects: Buying and selling art, collectibles, precious metals for profit is a huge investment opportunity if you know what you are doing. This calls for expertise to understand the history behind a specific object and the ability to forecast future demand.

Businesses:  Putting your money in a form of capital to provide goods/services for profit is a common and very rewarding investment. It’s also considered as one of the most important investments as it helps the investors work on themselves to achieve their life goals.

Lending Investments

With lending investments the investor allow other people or entity to use his money with the expectation of receiving interest as profits. This kind of investment is of low risk and less rewarding. Example is investing in the government treasury bills. With this you lend your money to the government and in return you receive an interest over a specify time frame. The interest rate is set to be fixed.

Cash Equivalents

These are financial investments that are generally as good as cash. The investments are very liquid but have very low returns. Example is the savings accounts you can have your money anytime, it very low risk almost risk free and the return is very low

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