If you were hit by the recent downturn in the economy, you know how important it is to diversify your investments. Many people think that gaining interest in a savings account or in a CD is enough to cover them for retirement. The truth is that people are living a whole lot longer today than 20 years ago. This is largely due to advances in medical technology. As an investor, you need to realize the need to diversify your investment portfolio in order to build a proper nest egg for retirement. Here are 5 types of investments that you need to know:
1. Stocks
The Stock market is a complex and dynamic area where one can invest in stocks, in a particular company. But before jumping into any action, try to understand some of the fundamentals as to how the stock exchange operate, otherwise you might be taking a big risk. There are two types of diversification. The purpose of diversification is to reduce volatility and improve overall performance; this can reduce the risk in your portfolio.
2. Bonds
Bond is the amount of money, which a debtor owes you. Compared to stocks, the bonds have less of a risk and so, are much more safer and reliable, but their only drawback is that they yield a lower return than the former. From bonds, you can enjoy a fixed yearly income in lieu for using investment for a particular period of time. For investors who prefer less risk factors or a regular source of income, these bonds are perfectly appropriate for them.
3. Mutual Funds
Investing funds can be considered as a group of stocks, bonds and other investments. Investors buy shares in investment funds represent a small percentage of each investment property in the portfolio of mutual funds. They can be as profitable and risky as stocks, but in general are more appropriate for new investors because they offer instant diversification. Note that a mutual fund is as good as the managers who are choosing investments.
4. Art
You can diversify and bring about a changeover in your portfolio by taking on art, which has not been a traditional investment. The rich art lovers can easily make a good fortune, if they very much want to and have the ability to predict the popularity of a particular piece of art or artist. Mostly the wealthy ones should handle this type of investment.
5. Trying It All Together
Now it is your choice to determine the right type of investment out of the 5 types. It is important to remember that investment options differ from person to person as the income level; financial capacity and risk tolerance are not the same. It is better to consult a qualified financial adviser who will guide you to invest according to your needs.
1. Stocks
The Stock market is a complex and dynamic area where one can invest in stocks, in a particular company. But before jumping into any action, try to understand some of the fundamentals as to how the stock exchange operate, otherwise you might be taking a big risk. There are two types of diversification. The purpose of diversification is to reduce volatility and improve overall performance; this can reduce the risk in your portfolio.
2. Bonds
Bond is the amount of money, which a debtor owes you. Compared to stocks, the bonds have less of a risk and so, are much more safer and reliable, but their only drawback is that they yield a lower return than the former. From bonds, you can enjoy a fixed yearly income in lieu for using investment for a particular period of time. For investors who prefer less risk factors or a regular source of income, these bonds are perfectly appropriate for them.
3. Mutual Funds
Investing funds can be considered as a group of stocks, bonds and other investments. Investors buy shares in investment funds represent a small percentage of each investment property in the portfolio of mutual funds. They can be as profitable and risky as stocks, but in general are more appropriate for new investors because they offer instant diversification. Note that a mutual fund is as good as the managers who are choosing investments.
4. Art
You can diversify and bring about a changeover in your portfolio by taking on art, which has not been a traditional investment. The rich art lovers can easily make a good fortune, if they very much want to and have the ability to predict the popularity of a particular piece of art or artist. Mostly the wealthy ones should handle this type of investment.
5. Trying It All Together
Now it is your choice to determine the right type of investment out of the 5 types. It is important to remember that investment options differ from person to person as the income level; financial capacity and risk tolerance are not the same. It is better to consult a qualified financial adviser who will guide you to invest according to your needs.
About the Author:
Cecelia Owens is an expert on money matters and does freelance writing for one of the top South African Investments Companies GPInvest.co.za.
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