Are you looking forward to building wealth? Kevin Cohee emphasizes that investment is the best way to generate enough income and wealth in the long run. While most people assume that savings are the best security, finance experts disagree. Understanding the various types of investments at your disposal could ensure that you make more logical decisions. There are three main categories of investment: lending, ownership, and cash.
Lending Investments
Lending investments are credit facilities extended to companies or the government. These investments are significantly less risky, and you’ll expect repayment with interest after specific periods. Under this category, you could consider savings accounts, certificates of deposit, or bonds, depending on personal preferences.
A bond is a debt investment where you extend a credit facility to a company or government. That means you’ll choose between a corporate and government bond. Bonds are often risk-free. They are designed to give you an income after a specific period.
Savings accounts are considered a lending investment, where the bank borrows your money to invest in other projects. Your cash balance earns a specific interest rate. While it is risk-free, this option does not offer the best returns. Instead of savings accounts, you could consider certificates of deposits, which operate as savings accounts. The only difference is that CDs earn a significantly higher interest rate.
Ownership Investments
Ownership investments mean that you become a shareholder in a specific company or industry. It is the most volatile class of investments yet the most profitable. Various options suffice under this category.
For instance, you can consider stocks, where you’ll own a portion of the company, regardless of how small your investment is. The buyer hopes that this investment will increase its value over time, giving them a more significant stake in the company. The buyer could also resell the shares at a profit.
You could also put money into a startup, including being an angel investor. Entrepreneurship is significantly challenging. Yet, it offers better results once the brand gets noticed. In the same breath, some people can opt for real estate investments, where they buy or build homes and properties, selling them at a profit.
Precious metals and collectibles are also part of ownership investments. Gold, impressionist paintings, and gemstones can hold your money for a while. You could then sell them for a profit later.
Cash and Cash Equivalents
These investments are often short-term, meaning that you can convert them back to cash at any time. They are suitable for those who want to earn a small profit on their money, preferably over a short period. You could consider money market funds, exchange-traded funds, and mutual funds in this category.
You can purchase money market funds at your bank or through a mutual fund provider. You’ll then leave the money with the mutual fund provider or bank for a specific period, often ranging between three and 12 months. This period is enough to earn a particular interest in the money.
In conclusion, investment is an excellent way of boosting your wealth growth. Yet, you must be careful enough when selecting the type of investment.
