Types of Investments
Most investors work with a financial adviser and/or stockbroker to understand what types of investments are suitable for their objectives, risk tolerance, and financial needs. Understanding which investments are available helps choose the correct ones for your account and develop a healthy, diversified portfolio.
Stocks
When you invest in a stock, you are purchasing a ownership interest in a corporation. The success or failure of the company determines whether you lose or make money on a stock There are two kinds of stock: common and preferred. Some companies issue preferred stock, which exposes clients to less risk of loss but also less potential for returns.
Bonds
Bonds are loans that investors make to a government or corporation in exchange for interest payments plus repayment of the principle over time. By the bonds’ maturity date, the organization must pay the principle amount plus interest. Bonds may be short-, medium-, or long-term, depending on the maturity date. There are many types of bonds, but the most common are:
Treasury securities
Savings bonds
Agency securities
Mortgage-backed securities
Municipal bonds
Corporate bonds
International market bonds
Investment Funds
Investment funds use money from investors to invest according to a specific strategy. Investment funds can include mutual funds, closed-ends funds, exchange-traded funds, and unit investment trusts. Publicly offered funds must register with the Securities and Exchange Commission (SEC). Private investment funds, or hedge funds, do not have to register and thus aren’t subject to the same regulations. Investment funds offer diversification, but they also involve risk.
Structured Products
Generally, a structured product is a pre-packaged investment that incorporates indices, bundled securities, foreign currencies, or other derivatives. Derivatives are investments that take their value based on how an underlying entity performs in the market. There are different types of structured products, and they have many risks for investors.
Other Investments types can include:
1035 Exchanges
Alternative Investments
Business Development Companies (BDCs)
Closed-End Funds
Collateralized Loan Obligations (CLOs)
Conservation Easements
Cryptocurrency
Direct Participation Program
Energy Investments
Equity-Linked Notes
Exchange-Traded Funds (ETFs)
Futures
Inverse Exchange-Traded Funds
Junk Bond Frauds
Managed Futures Funds
Master Limited Partnerships (MLPs)
Options
Penny Stocks
Preferred Shares of Stocks
Private Placements
REITs and Non-Traded REITS
Reverse Convertible Notes
Securities-Backed Lines of Credit
Single Premium Immediate Annuity (SPIA)
Special Purpose Acquisition Companies (SPACs)
Unit Investment Trusts (UITs)
Variable Annuities
Variable Universal Life Insurance (VULs)