You work hard for your money, and you want to invest, so you have a comfortable future ahead of you. If you’ve been looking into portfolio investments and talking to the money guys, you’ve probably already figured out that they have their own language and jargon. You want to learn some of this jargon to make yourself feel more comfortable and knowledgeable with investments.
When you decide to put together an investment portfolio, there are a few terms and investment choices that you need to know. These are the most common types of portfolio investments, and they can help you build enough wealth to retire in comfort if you create the right strategy. Here’s a look at the investment types that every new investor should know.
When you purchase a stock certificate from a company or through the stock market, you’re essentially buying a small piece of the company. You become one of many owners in that company. As an owner, you also get a share of any profits from the company. Also, as the company grows and becomes more popular, the cost of a stock share goes up — making your shares worth more money if you decide to sell them — and sometimes, the company will split the stock shares, so if you had 10, you now have 20 stock shares. Stocks can rise and fall, and in some cases, buying a company’s stock comes with a great deal of risk and reward.
As a partial owner, it’s a good idea to review their company reports and filings. You may be called to vote on certain issues, depending on the amount of stock that you own in a specific company. You want to watch to make sure the company continues to grow and thrive and remains a good investment. You make money from stocks in a couple of ways. When you sell your stocks, if they’re worth more than when you bought them, you make money. Companies will pay dividends to each of their stockholders. Dividends are a percentage of the profit that the company made.
When you buy a bond, you’re loaning money to the entity that is issuing the bonds. With bonds, you aren’t investing in companies. The state, federal, and local governments issue bonds to build things or make improvements. Included on the bond are the terms of repayment. This includes the date of expected repayment and the interest rate that you receive on your money. These tend to be more reliable than the stock market and company stocks. However, the return on investment isn’t as high as it can be with other investments.
In some cases, companies and corporations may issue bonds. However, these aren’t as secure as those issued by the government. Bonds are usually considered fixed assets because you know how much interest you’re going to receive on your investment upfront.
Imagine that you have a little money to invest, and you know 10 other people who have a little money to invest, so you all throw your money in together to invest in stocks, bonds, and other portfolio investments. This is a simplified version of a mutual fund. When you invest in mutual funds, you are adding your investment dollars to the pool of funds from other investors to have more buying power. A professional money manager oversees the mutual funds and strives to ensure the original structure and goals of the fund.
Mutual funds are designed to give people with limited funds the chance to invest in stocks, bonds, and other investment opportunities. They also enjoy any gains and pay for any losses in the fund. There are mutual funds that concentrate on high risk, high reward investments, and ones that invest in reliable but steady monetary gains. Before investing in a mutual fund, you need to look at the fees involved. This can include a management fee and a sales fee. You want to ensure that the mutual fund you select is investing in the investment items you want to invest in.
An exchange-traded fund (ETF) is a group of investments, including stocks, bonds, and commodities that you invest in along with other investors. It’s similar to a mutual fund. With an ETF, a single investor buys a broad range of investments and creates a portfolio. The person then sells shares of their fund to other investors. When the fund does well, all the investors do well, and the opposite is true in a downturn. However, when you invest in an ETF, you don’t own any of the stock, bonds, or other portfolio investments that the creator of the fund owns; you only own a share of the fund.
ETFs are traded on the stock market, making them easy to purchase. Even though you don’t own the underlying assets in the funds, you still get your stock dividends when the company hands them out. The shares of the ETF trade at a market value that may be different from the value of the underlying assets.
Other Common Portfolio Investments
The four investments above make up the bulk of your choices when it comes to investing. However, there are some other common portfolio investments to consider. Here’s a look at a few of them.
A commodity is a good that’s used to make other goods or sold as a consumer product. These are goods that are essentially the same from one supplier to the next, such as:
- And more!
Some of these commodities are sold on the exchange as an investment. Of course, one bad crop can wipe out your profit while a high demand can drive up the value of your commodity.
Initial Public Offerings (IPOs)
These are stocks that are being offered for the first time in anticipation of some sort of breakthrough, such as a drug company about to release a new cancer drug. It can also be a stock that might be in the cross-hairs for a takeover.
At Bogart Wealth, we know that the more you understand about portfolio investments means the easier it is for you to make good investment decisions. We enjoy partnering with our clients to help grow their wealth. Contact us today to learn more or schedule an appointment.