The following article is a guest post.
Over the past decade, a growing number of people have turned to investing as a means of supplementing their incomes. Once seen as the reserve of those rich enough to hire professionals who could trade on their behalf, this changed with the ever increasing prevalence of the internet. Acting as the great leveller, it offered ordinary people access to the markets in an entirely new way.
This has not come without its complications. Investing is a blanket term; one that covers a wide range of investment instruments. Spread out like an exotic banquet before you, it can be hard to ascertain which dish you’ll most like the taste of, and that’s why we’ve created this handy guide to help.
Simply read on to learn all about the options that are available to you…
We’ll begin with something simple: bonds. Bonds are usually a good investment choice for those with a conservative approach to risk, as they tend to be relatively predictable. Essentially, a bond is a loan that you are giving to a government or institution, in exchange for a pre-agreed interest rate that they will pay you over a specified period of time. When the term of the bond agreement ends, the total face value of it is repaid to the investor, so that you end up fully compensated with a little extra on top. This makes bonds an ideal early investment, and a wonderful tool for providing a stabilising influence to your portfolio.
Perhaps the most well-known investment instrument is stocks, which work by providing investors with partial ownership of a publicly traded company. These represent a claim on a proportion of the corporation’s assets and earnings, which is directly tied to how traders turn a profit. If you’re thinking of investing in stocks, then there are two main types that you need to be aware of: common and preferred. The former will entitle the holder to have their say at shareholder meetings, as well as putting them in receipt of dividends. The latter, on the other hand, does not bestow any voting rights, but does give the owner an increased claim over assets and earnings, and priority in the event of a business’ bankruptcy or liquidation.
#3: Mutual Funds
Next up, mutual funds. Mutual funds are sometimes believed to be a reasonably complex investment vehicle, but they’re quite simple in reality. They allow you to invest your capital in a professionally-managed portfolio of assets, leaving most of the everyday control and decision-making down to others, which means that they’re best for those who don’t wish to be too hands-on with their investments. They may contain a wide variety of assets, covering multiple classes of investment instrument, all carefully selected to achieve an overall financial goal.
#4: Exchange-Traded Funds (ETF)
A second type of fund that you might consider investing in is an ETF. Commonly known as a portfolio of securities, these work much like a mutual fund, tracking an index, a commodity, bonds, or a ‘basket’ of assets. The main difference between the two is that ETFs are traded in much the same way as common stocks on a stock exchange, experiencing multiple price fluctuations over the course of a day as they’re repeatedly bought and sold. This gives them a higher overall liquidity than their mutual fund counterparts, and this, combined with their more conservative fees, makes them an attractive proposition to many investors.
For those who are not deterred by risk, currency trading is a useful option to consider. The forex market is renowned for being the largest and most liquid in the world, and great sums of money move within it. With an average traded value exceeding $5 trillion a day, it is a place where fortunes are made and lost, and thus perfect for those with talent and tenacity. With its central marketplace trading 24 hours a day, five days a week, it can be a wonderful choice for those working around already restrictive commitments, and this is a major part of its appeal. If you’re looking for both opportunity and accessibility, it is definitely an option to bear in mind, and brokers like ETX Capital are usually all too happy to answer any further questions that you might have.
A commodity is a raw or primary product, and these are traded via physical and virtual marketplaces all around the world. At the current time, there are around 50 major markets globally, facilitating investment trade in around 100 primary commodities. As a rule, the markets split these assets into two generic types: hard and soft. The former are natural resources, ones which must be mined or extracted, whilst the latter term covers agricultural products and livestock. There are numerous ways to invest in these products, from purchasing stock in the businesses that rely on commodity prices to sinking your capital into funds with a focus on commodity-centred companies. Most directly, you can purchase a futures contract, which we’re going to discuss below.
There are many more investment instruments for those willing to spend the time researching them, but the last one that we’re going to discuss here is futures. Futures can sound rather confusing when described on paper, but they’re really not that complex once you manage to wrap your head around them. Essentially, futures are financial contracts which obligate the buyer to either purchase or sell an asset at a predetermined future date and price. These contracts are often detailed, and will contain information pertaining to factors like the quality and quantity of the purchased asset. Commonly used as a tool for hedging, they allow investors, who will often double as producers or other parties with a vested interest, to lock in a particular price and thus reduce the risk of their venture.
If you’re considering investing, you’ll soon discover that there are a wide array of opportunities available for you to choose from, each of them suiting different traders and financial goals to varying degrees. The trick is to do your research, carefully consider your decisions, and wait to make your move until you find the ideal investment instruments for you.