In any textbook on economics, you will find an extensive classification of investments. But we will analyze only that part of it that relates to the private investor. And the first sign is investment objects. Depending on it, investments are:
- Real – investments in real assets, for example, the purchase of real estate, land, equipment;
- Financial – investments in securities (stocks, bonds), currency, derivative financial instruments (futures, options).
By investment terms:
- Short-term or speculative – this is a game on the difference in the price of an asset, several purchase and sale transactions can be carried out per minute, this type is difficult to attribute to an investment;
- Medium-term – for a period of 1 to 5 years, the goal may be buying a car, education of a child, vacation, etc.;
- Long-term – investments for a period of 5 years, as a rule, the main goal is to create passive income from capital.
The strategy depends on the investment period: active or passive.
What are the types depending on the nature of the investor’s participation:
- Direct, when an investor invests directly, without the participation of an intermediary (for example, in the development of a business, his own or someone else’s);
- Indirect, when funds are invested through intermediaries (brokers).
By risk level:
The choice of option depends on the individual investor’s attitude to risk.
Bank deposits. It is a traditional instrument, which for many still remains the only way to invest. Bank deposits provide low returns, but are one of the safest ways to invest money. Therefore, most of the conservative investors prefer them.
Stocks and bonds. For beginners, these are risky instruments other than federal and municipal bonds. But the profitability on them is also higher than on deposits. It is necessary to buy shares and bonds of individual issuers only after theoretical training. If you do not want to risk it and decided to stay on government and municipal bonds, get ready that the yield on them is not much higher than on bank deposits.
Index funds. At the initial stage, it is better to invest in index funds that follow the stock index (mutual fund or ETF). This will allow you to immediately fulfill the first rule of a competent investor – diversification. There are funds for stocks, bonds and even gold. Invest in the American, Chinese, German and other markets in different currencies. The decline in quotations for some shares included in the index is offset by growth in others.
Currency. Not the best advice is to buy hard currency and deposit at home. First, it is unsafe. Secondly, inflation has not been canceled. The same bad advice is to put it in a foreign currency bank account. The rates there are indecently low. Alternatively, study the topic of PAMM accounts and build a portfolio of several accounts with a conservative strategy and a long history.
Real estate. Suitable for people with large initial capital. And the one who hopes to buy on a mortgage, lease it out, repay the loan at its expense and earn something, he may be very disappointed. Calculations, calculations and calculations again. For those who do not have enough money to buy real estate, an affordable option may be to purchase shares of real estate funds or participate in a closed real estate fund.
Precious metals. Experts call this a defensive option. There will be no great profitability. Only if another global crisis breaks out, and all investors rush to buy gold instead of collapsed securities. It is for such cases that they invest in precious metals.
Venture investments. This is a highly profitable and at the same time high-risk option. Investing in something new and promising can bring thousands of percent of profitability, and can turn capital into 0. Examples of successful venture projects: Facebook, Alibaba, Xiaomi.