Investment is very similar to savings. The basic difference is that savings is an obligation to lend against a current asset (a stock, bond, mutual fund, etc. ), and in most cases, an interest rate is charged on the cash that is lent. On the other hand, in investment, you are basically investing with the hope of gaining an interest income from the investment itself – in other words, to invest simply means having an asset or item with the hope of generating a return in the future for the initial investment. Obviously, the return could be in the form of profits, principal, or any combination thereof.
Many types of fixed interest investments are available to investors. These include bonds, common stocks, mutual funds, mortgage-backed securities, and treasury bills. Bonds are obligations to pay fixed returns during a specified period of time; these usually are long-term bonds (commonly thirty years) or government bonds (for federal agencies). They are backed by various governmental agencies, including the U.S. Department of Treasury.
Stocks, on the other hand, shares in a corporation or in an entity. A common type of stock is preferred stock, which stands for common stock. Preferred stocks normally pay lower returns but come with less risk because they are backed (by the corporation or the government) by a government agency. Interest rates on the preferred stocks can vary widely, depending on their financial status.
Mutual funds, also known as index funds, are high-risk investments that purchase various types of bonds and other financial securities from various companies. Because these types of securities carry less risk than most other investments, they carry higher returns but also come with greater expenses. The fees that are paid to fund managers may include expenses for account maintenance of stocks and bonds, as well as distribution and profit sharing. The amount of profit that can be realized through mutual fund investments varies greatly. For example, although a typical mutual fund will claim a zero percent dividend, it is more common for them to pay out a little over one percent.
Mortgage-backed securities are bonds that are insured against the credit risks of mortgage loans. These types of bonds typically have higher interest rates than other types of bonds, but they are less likely to default and are often involved in exchange markets that are highly volatile. A mortgage-backed security may also offer low-risk investments that pay out regularly. However, it is still best to remember that mortgages, like most other investments, carry risks. For this reason, mortgage-backed securities are best used for more conservative, long-term investments. It’s still best to budget for these investments according to your current financial needs rather than according to their potential returns.
In summary, there are many investment options to consider when you’re planning for your financial future. Mutual funds offer a high return on investment opportunities, and there are also several different categories of bonds and stocks to consider. Investing in commodities can provide a variety of possible investment scenarios, from the stability of oil prices to the profitability of mining stocks. If you’re interested in making an investment with a lower risk, bonds should be considered. If you’re looking for more high-risk options, stock investments are available for many different types of scenarios.