Let’s talk about the different types of investments so that the readers and visitors of this blog would get benefits and be well-informed about investment opportunities. We will discuss in this article the different types of investments and what the investor should expect (risk and return).
Nowadays, it is easy to invest money. People realized that saving money in the bank is not enough to make their money grow overtime. They discovered different types of investments. That’s why they are searching for a possible investment opportunities. They are willing to take risk, however, they don’t know the risk involved in each of these types of investments.
Before you will study the investment types to be discuss in this article, analyze first your risk appetitie, your goal in investing and the reason why you invest. Do you believe in the saying “take risk, if you win you will be happy, if you lose, you will be wise”? If you agreed with the quote, then you are surely a winner in investment world.
Understanding Your Risk Profile and Types of Investments
Know where you belong, so that you can decide where you should invest your hard earned money.
- Aggressive Investor: This type of investor usually take risk for 10 years or more and his goal is for long-term capital growth. Willing to take higher risk and expecting higher returns in investing for long years, he can tolerate for possible of losing money.
- Moderately Aggressive Investor: This type of investor usually invest his money for 5 to 10 years and his goal is capital growth can tolerate a fair level of losing money.
- Moderate Investor: Also invest for 5 to 10 years and his goal is capital growth.
- Cautious: Usually invest for 3 years. His goal is for investment capital protection.
- Conservative: usually invest for 3 years also. His goal is for capital protection.
There are different types of investors, you can take a risk profiling test online to know what investor type you are. The reason why you should know your risk appetite is to match your risk appetite to the different types of investment. Investor who is willing to take high risk of course should invest in high risk investment types.
Types of Investments for Your Plans and Goals
The reason why you invest is maybe you want a passive income for your retirement or you want to prepare your child’s education, maybe a business capital, maybe a brand new car or even want to build a bigger house after few years. Know your purpose in investing, so that you will stay motivated and your interest and enthusiasm in investing will remain.
Going back to the different types of investments, let us discuss them one by one. If you want to share your thought because you found this article not complete, then share it in the comment box.
In investing, you must know when to get the possible ROI return on investment. Keep in mind, that you should find a sound investment that fit into your risk profile and meet your investment goal. A poor investment planning will only result to losing of investment capital.
Understand the Value of Time
In investing timing is not important, time is. Time is the most valuable thing in investment world. The longer your money is invested, the more chance it will grow because of compound interest. Invest while you are still young and capable to make a lot of money to invest. To know more about the importance of time in investing, read our article about the future value formula.
Which Types of Investments Should You Choose?
You can invest in liquid assets and illiquid assets. The difference between liquid and illiquid asset is a liquid assets are money-based (easy to convert into cash)and illiquid assets are tangible things such as properties like house and lot which take a lot of time to sell.
There are three types of liquid asset investment and these are the “cash, stocks, and bonds”.
Cash is one of the safest investment such as time deposits, treasury bills, money market accounts and funds. Stocks is a partial ownership in a company (example Jollibee Food Corporation, SM, Ayala Corporation, San Miguel Corporation etc.) when these company made aprofit, you should also make a profit when you have share of stocks in these companies.
A bond is a “loan” you make to the company or government. These types of investments has different advantages and disadvantages. One will give you a high ROI return on investments while others don’t.
Related: Which Investments Can Give Highest Return?
There are specific forms of investments namely savings account, checking/current account, US Dollar account, time deposit, trust account, mutual fund.
US Dollars account is somewhat valuable especially during economic crisis. Dollar appreciates but peso depreciates. Forex trading expert in this field can make more money,
Savings account and checking/current account doesn’t have any interest but other banks offer these with interest, maybe as a promotion or reward.
Time deposit is another type of investment but it can’t beat the inflation due to low interest rates earn by the investor.
UITF (Unit Investment trust Fund) usually offered by the banks. You and the bank will earn if the trust fund value appreciate. I have an experience in UITF investing through BDO Easy Investment Program for their UITF. I have the UITF Equity fund doing a cost averaging P2,500 per month.
Mutual Fund is also another good type of investment. A mutual fund and UITF is somewhat the same. But mutual fund is only available for financial institutions not in the banks. In the Philippines, here are the mutual funds companies.
UITF and Mutual Fund investing will give you a better option especially if you know your risk appetite, they have type of investments for high risk, moderate risk, aggressive risk, balanced etc. Some types are money market fund, bond fund, equity fund, balanced fund and fixed income.
It simply means if you want to invest in bonds, then invest in UITF/Mutual Fund bond bond type of investment. If you want to invest in stocks but not familiar in using stock trading platform, then invest in stocks indirectly by investing via UITF/Mutual Fund equity type of investment. For a combination of stocks and bonds, just invest in balanced type of mutual or UITF fund.
Stock Market Investing
Do you want to be a part owner of your favorite giant company in the Philippines? There is a stock brokerage company named COL Financial, it is easy to invest in the stock market. Do you know that you can invest P5,000 per month directly in the stock market? How? See InvestmentTotal.com guide on how to open a COL Financial account in the Philippines.
Read our guide on how to invest in the Philippine stock market?
For people in other countries searching for types of investment and want to invest in UITF. Mutual fund and stocks, search and investigate legitimate companies offering these financial instruments.
Insurances are Good Type of Investments
I can say it is, insurance is very important especially during unexpected events.
I have my insurance in BPI-Phil Am Life Protect, whatever happened to me (in case I will go to heaven too early) BPI-Phil Am will give my beneficiaries (my spouse and kids) a faced amount of P1,000,000 which is a good amount to help my family to recover financially in 3 years.
Jewelry Gold and Artwork
Jewelries can also considered as type of investment because it also appreciate its value. An artwork is an investment especially if the artist is well-known. After decades the art is also appreciate in value. Look at the art of Leonardo Da Vinci, Michael Angelo and Donatello, painters and sculptors.
Real Estate Properties as Investment
A house and lot can also be a type of investment. Look at condominiums, residential houses and resort or even a rental apartment. That’s why investors look a low cost land and develop it and become an investment. Some real estate agent are now smart, they use the word “investment” when they sell condominiums and house and lot.
Reference: You Can Be Rich by David King, pp 77 – 89
Worldlink Marketing Corporation, published by Worldlink Books, 2002
I remember what T. Harv Eker said about real estate investing; “do not wait and buy real estate, buy real estate and wait”. It is because real estate properties is appreciating in values overtime, but it is not easy to convert in cash compare to stock shares.
Updates: Types of Investment
Business and Enterprises is a great investment, like in my experience I have a small business enterprises and hog raising business. Whenever I make profits in business, I make additional investment in my paper assets. It means, business can help you to create a source of funds to fund your paper assets investments.
Invest in Education. Other people say education today is very expensive. Without any knowledge, you are putting yourself in “danger zone” especially in investing. Know what you are doing, education in investing such as “risk management, basic fundamentals in investing in stocks, mutual funds, UITF and starting a business”. The more you know, the more money you can make, as long as you are applying what you know.
How to invest in education? Attend seminars, get a mentor or a coach, read blogs like InvestmentTotal.com, buy finance books-see examples of these useful business and finance book. As simple as that.
You don’t need to attend another university and study accounting just to be educated in investing. There are financial literacy seminars conducted by our fellow Filipinos almost around the globe.
Stock Market Investing Made Easy
Let me share some talks about stock investing today, investing in the stock market is easy because of the technology and it doesn’t require a lot of money to own a company shares. The stock market investing today in the Philippines turned to be popular. And that’s a good thing for Filipinos like me.
In investing, you don’t have to study the whole stock market thing, searching for stock market results or recommended stocks to buy today. Some people especially beginners are looking for “stock tips for today”. Here is the tips from Bro. Bo Sanchez, invest small amount every month for 20 years or more, buy as many as 10 companies – equal amount each one. Invest in the stock market even when there’s a crisis. Invest only in giants companies and invest in many giants.
Reference: My Maid Invest in the Stock Market (eBook) by Bo Sanchez , pp 36-54
The main goal in stock market investing is to get ROI as high as possible, to become financially free, to gain more money that’s why you are willing to take high risk. Risk is should be proportionate to your expected return.
How the Stock Market Works?
Buy company shares using stock broker services, in my experience (COL Financial). You cannot buy company shares if you don’t have a stock broker, make sure your stock broker is legitimate and registered with security and exchange commission to avoid scam.
Earn Through Capital Gains and Dividends
Buy low, sell high. You will earn money when the company shares will increase its price. Example ABC stock price is P1 per share, then you bought 10,000 shares, that means you invest P10,000 for that ABC stock. Few years later, the ABC stock price is P2, for 1,000 shares its market value is P20,000, that means you gain P1 or P10,000 (doubled your money) or 100% ROI Return on Investments. Aside from that you can also get dividends, as a bonus for the stock holder.
The more shares, the more chances you will receive more dividends. Dividends can be stocks dividends or cash dividends. Example, a company announce that a P1.00 dividend for every stock shares, then if you have 3,000 shares you will receive P3,000. Computation is for information purpose only, in this computation the tax is not included.
You can buy shares in your stock broker trading platform. You can see the gains and losses of your investments in every stock you bought and the total value equity as well.
Stock Market Investing Strategies
- Do a peso cost averaging. What is a peso cost averaging? Invest a small amount every month (example P5,000 per month investment) regularly, it he price of chosen stock is high you will only buy less stock, but when the price is low, you can buy more stock shares. Do it in 10 years or more and your money will grow over time compare to time deposits or other type of investments.
A sample computation if you maintain your stocks to earn 18%. Read the future value of P5,000 per month investing or P60,000 per year. I used 18% because you can earn in in the stock market.
- Buy and Hold (Lump Sum Strategy)
Just buy stock in lump sum, example P1,000,000 and let the time will do the work. Imagine if you invest P1,000,000 and your money will double after few years.
Summary: Types of Investments
- There are two types of assets; liquid and illiquid.
- Liquid Assets are cash, stocks and bonds while illiquid assets are tangible things such as real estate properties.
- Savings account, checking/current account, US Dollar account, time deposits, trust funds, mutual funds, retail treasury bills, stocks are the specific form of investments.
- Insurance, general items such as jewelries (gold) and artworks can also consider as a good type of investments.
- Real estate is the alternative investment type if you are not comfortable to invest in the stock market.
Risk Profiling for Investors
Low Risk – time deposits, savings account
Moderate Risk – combination of bonds and stock securities
High Risk – purely on stocks equities
I do hope you learned so many things in this article. I have written the different types of investments, you can now decide when and where to invest your hard-earned money to make it grow and someday your money will take your place to work for you. Keep visiting and sharing InvestmentTotal to learn more about financial education.