Types of Investments

A Down-to-Earth Analysis

Published: 12/21/2022

A Recap on What An Investment Actually Is

Investing is the dedication of money to purchase an asset that you expect will increase in value over time. You invest your money in something with the expectation that it will appreciate, and you’ll be able to sell it at a higher price than what you paid.

Investing is simple, but there are many different ways to do so. When looking at different types of investments, we need to consider what they are, how they make money, and how much risk they pose.

Investing is the dedication of money to purchase an asset that you expect will increase in value over time.

Examples: Residential house (real estate), heard of goats (commodity), people gathered together for a meeting (business), luxury watch (tangible asset), coca-cola, one of the most recognized brands in the world (intangible assets), a person accepting money (personal loan), and an army (which represents the future success of a government).

7 Things That You Can Invest In

Investing is the act of committing money or capital to an endeavor (a business, project, real estate, etc.) with the expectation of obtaining an additional income or profit. The main ways to invest are through money and financial markets, real estate, and businesses.

1. Real Estate (Land and the Structures That Reside on Them)

Real estate is a broad term that refers to any property owned by an individual or company. This can include homes, offices, warehouses, factories, farms, and more. Real estate can also refer to land itself and any structures that reside on it (such as homes). Real estate has been an essential part of economies worldwide since humans settled down permanently in one place instead of constantly moving around. There are five main real estate categories: residential, commercial, industrial, raw land, and special use.

2. Commodities (Raw Materials and Primary Agricultural Products)

A raw material is an intermediate product that is used in the manufacturing of finished goods. Raw materials are also known as primary agricultural products, commodities, and primary goods. The term "raw material" covers many products but generally includes bulk materials such as iron ore, steel, and petroleum.

Commodities are often regarded as physical materials such as metals and minerals, but they can also include some services. A commodity can be classified as a good or service naturally produced in large quantities by many firms in an economy. Commodity markets exist for goods such as oil and gas, grains, precious metals, and other basic needs of human beings.

3. Businesses (Groups of People Working Towards a Specific Goals)

When you invest in a business, you're putting your money into an enterprise where people work towards a specific goal. The idea is that if the business does well, then everyone involved will benefit from it. If it doesn't do well or goes bankrupt, you lose all or part of your investment. The money you put into a business isn't just a loan. You're also buying shares in that company and becoming an owner. Your investment gives you a stake in the company's future, so if it does well, you can share in its profits. If it doesn't do well or goes under, you'll lose all or part of your investment.

4. Tangible Assets (Finished Products Which Have Value)

Finite products are “tangible” assets: they have a physical existence and are not intangible. They can be touched and seen, although they may need to be maintained and repaired.

A person who has finished goods has a completed product ready for sale. This can be done on a small scale by an individual or on a large scale by a company. The difference between the two is that the individual will not usually have the resources to store or sell their products.

5. Intangible Assets (Knowledge, Brand Name, Patents, and Copyrights)

Intangible Assets are non-cash assets that cannot be touched or seen. They are not physical in nature and cannot be sold physically. Examples of intangible assets include patents, copyrights, trademarks, brand names, trade secrets, and goodwill. These assets are typically recorded on the balance sheet as an asset.

6. Loans to People (Individuals With Willingness and Ability to Repay)

The term "individuals with willingness and ability to repay" refers to a borrower's creditworthiness. A borrower with a history of repaying loans on time is more likely to repay their new loan. Borrowers who have had trouble repaying may not qualify for a personal loan.

If you do not have any existing loans, your credit score will be used by lenders to determine whether they are willing to extend your credit. If your credit score is low because of late payments or other issues, you may find it challenging to obtain a new loan. However, if you maintain good credit and pay off your debts on time, lenders will be more likely to extend your credit.

7. Loans to Your Government (and It's Future Success)

The government bond market is a crucial component of the U.S. economy and an essential indicator of economic health. It's also one of the most misunderstood aspects of our financial system.

Bonds are debt instruments issued by governments, companies, and other entities that pay interest regularly. The payments are made to investors who have purchased the bonds.

Investments vs. Investment Vehicles

A stock or bond is not the investment. You are investing in a company, and the stock or bond is your vehicle for buying into the company.

You’re not just buying a piece of paper — you’re buying into a business and supporting its future success. The best way to ensure that success is by understanding what makes a company great and why its stock price should go up over time.

A Stock or Bond Is Not the Investment, You Are Investing in a Company, the Stock or Bond Is Your Vehicle for Buying Into the Company

End of Lesson 2

Investing is the dedication of money to purchase an asset that you expect will increase in value over time. The primary goal of investing is to grow wealth, but it can also be used as a way to provide insurance against future financial needs.

Investing differs from saving in that it involves risk and allows for greater potential growth in value over time. It's also different from speculating, which is betting on the future price of an investment without regard for the underlying value or risk.

Up Next

A financial security is a document representing a legal agreement involving monetary value. It can be a certificate of ownership or any other item that gives the owner or holder the right to receive something of value, such as cash, goods, or services.

The most common financial security is a stock certificate, which represents ownership in a corporation. Other types of securities include bonds, options, and derivatives.