Different Types of Investing

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Investing as a beginner is a daunting task. There's a wide variety of ways to make money, and you can find an expert that recommends any or all of them. The key to getting experience is moving slowly until you get the hang of it, but it's hard to know where to start. There are many types of investing worth considering at a starting point.

Bonds

Bonds are fixed-income securities guaranteed by a government or company. By purchasing a debt, you're providing up-front capital to the guaranteeing entity. In return, they will agree to pay out interest throughout the term of the bond and eventually pay back the entire sum you lent them. Bonds are a very safe, stable investment, especially when they're issued by a stable government.

Stocks

Also known as equities, purchasing a stock gives you a physical share of a company. You're entitled to any profits they earn, known as dividends. You'll even enjoy voting rights. Stocks are popular since they offer the potential for incredibly high returns. Of course, you can also lose your entire investment if the company falters, so there is more risk investing in stocks than other types of assets, like bonds.

Mutual Funds

Instead of investing in a single stock or bond, a mutual fund invests in a portfolio of them. Your investment funds are pooled with money from other investors and managed by a professional financial manager. They select securities based on a very specific strategy. Certain mutual funds may target high-yield short-term growth while others may target a steady, low-risk growth.

Mutual funds are a great way to get started off as an investor since you'll be able to leverage the experience and expertise of a professional without having any of your own. On average, a mutual fund will provide a much better return than a new investor could hope to earn by themselves, given their target goals. There are some concerns about investing in a mutual fund, but they're generally a strong option for new investors.

Alternative Investments

Stocks and bonds are the two most common types of debt, also known as equity and debt. The vast majority of investments fall into one of these two categories, but some outliers don't. These are known as alternative investments.

Alternative investments vary widely, and include things like FOREX (currency pair trading), futures, real estate, options, commodities, private equity, and more. As a beginner, you likely won't need to worry much about alternative investments. Their ceiling is quite high, but that's because they come with a great deal of inherent risk. Until you have some experience, it's best to leave alternative investing to the seasoned veterans.

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