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Investment can be defined as use of
capital to purchase financial instruments to gain profits in the
future. It should be differentiated from speculation. Investment
usually involves longer term of holding while speculation is more
towards purchasing an asset to gain profits via short term price
movements.
What Are the Different Types of
Investments?
If you are an amateur, it may not be an
easy task to select the types of investments you want to put your
capital in because there are many types of investment vehicles
available in the market.
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Bond - A bond is a debt
certificate issued by a corporate company or government to borrow money
from the public with a promised return. By purchasing a bond, you can
expect your capital and its interest to be returned to you upon
maturity. Bonds issued by a more stable company or government usually
promise lower interest; while bonds issued by a not-so-stable company
shall promise higher interest as the chance of default is also higher.
However, a bond is fundamentally a more secure investment tool.
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Stock - A stock is a capital
raised by a corporate company by promising the share of ownership of
the company. The price of stocks can go up or go down depending on
company's performances and investors' perceptions. More often, the
prices of stocks are determined by perceptions, rather than
performances. There are a few terms commonly used; share, equity and
stock, they are all same. A stock does not guarantee any return. It may
declare dividends (usually low) if company's performances are good. It
is a high risk investment vehicle. You need to study it well before
investing.
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Real Estate - Real estate refers
to a land and its improvements, namely buildings and anything affixed
to the land and lies beneath the land. The common terms used, which
carry the same meaning, includes real property, realty and immovable
property. Any gains from a real property are known as estates. Rent is
one of those, which generated via allowing tenants to utilize on the
property.
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Commodity - A commodity is a good
produced and sold by various company. It has almost the same market
value across the board over a period of time and without qualitative
differentiation. Oil, copper, wheat, natural gas, electricity, rubber
are some examples of commodities. Commodities are often traded in
different market with different currency. There is a specific minimum
quantity you need to purchase in the cash market. Commodity is
generally less volatile compare to stocks. Hence, it is one of the
favourite investment instruments when the stock market fluctuates.
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Collectible - To different people,
collectibles may have different meanings in them. Some may treat
seashells, unique rocks, rare insect species as their collectibles. Ask
a gamer, he may tell you the virtual items he collected from online
games are treated as his collectibles. Old stamps, old coins, limited
edition toys at the same time are others favourites. They are something
that hold a special place in your heart. The collectibles which are
more widely recognized would be antiques. Antiques usually possess a
market price which is agreed by most of its collectors.
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Mutual Fund - A mutual fund is a
scheme where money is pooled from many investors and invests
collectively on series of securities such as money market instruments,
bonds, and stocks. The purpose of mutual fund is to let the individual
investors (usually small scales investors) to diversified their
investment portfolios to reduce market risks. The risks of mutual fund
is relatively low, compare to direct investment.
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Financial Derivative
- A financial
derivative is a financial instrument which its price derives from the
underlying assets. Derivatives are usually related to leveraging where
you can control a bigger value of stocks with relatively low capital in
hands. Derivatives can be used to hedge risks, especially risks of
currency exchange when making a deal. It can also be used as an
instrument for speculation. The risks of investing in financial
derivative is very high. Options and futures are some of the examples
of financial derivatives.
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Derivatives:
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Foreign Exchange (Forex) - It is
also known as currency market, where currencies of different nations
are bought and sold. There are basically two groups of people in
currency market, corporate companies and currency traders. Corporate
companies trade currencies for the use of buying goods from foreign
countries, paying wages and expenses to employees overseas. On the
other hand, a large portions consists of currency traders. They trade
currencies in order to gain profits from the movement of the currency
prices. This is considered a high risks investment.
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