Saving up for the future is no longer the trend today. In fact, it is no longer an effective way of cultivating a richer you during the course of 5 or 10 years. Nowadays, people invest in jewelry, real property, and even insurances. But what does investing really mean?
According to Investopedia’s Investing 101, investing is simply “the act of committing money or capital to an endeavor with the expectation of obtaining an additional income or profit.” But what if there is no profit? Then that cannot be considered an investment.
There are many kinds of investments out there, all of which can be categorized into these three investment types:
1) Ownership Investments
The first and most popular kind of investment is called “ownership investment.” As the name implies, these are the kinds of things we invest in by owning them. Some of the best examples cited by Investopedia include stocks, businesses, real estate, and precious objects. While these are considered the most profitable, it is also the most volatile and riskiest kind of investment there is.
2) Lending Investments
This kind of investment lets you be the bank. Lending investments include your regular savings bank savings account and the so-called “bonds.” Unlike ownership investments, lending investments have lower risk. Bonds, for example, are usually issued by a company to provide you with a particular amount over a period of time. It can increase if the company thrives and increases its value. However, if the company becomes bankrupt, the bond holders still receive their money as usual, while the stock owners in the firm get nothing.
3) Cash Equivalents
As the name implies, cash equivalent investments can be considered “as good as cash.” These are the kinds of investment that can easily be converted back into cash like money market funds. However, unlike ownership, this kind of investment tends to have a very low return since the risks are also very small.