Understanding Investment Types

Investing refers to the process of creating and maintaining a financial portfolio to serve as protection for wealth, investment, and future funds. To invest is to put money into an investment with the intention of receiving a return/profit in the near future. Simply put, to invest literally means having an asset or an object with the intention of making money from the investment or simply the increase of the value of that asset over a given period of time. You do not have to own the assets in order to participate in investing. You can invest in mutual funds, stocks, bonds, money market instruments, derivatives, government and municipal bonds, foreign securities, mortgage-backed securities, insurance marketplaces, and real estate.


The objective of every investment is to provide a higher return over a given time frame. The primary purpose of all assets is to provide a higher return. There are various ways of creating a portfolio that aims at providing higher returns. An important thing to consider is whether the risk of loss should be included in the investment plan. The objective of every investment is the highest possible return on investment (ROI).

All businesses and financial portfolios are designed with specific goals in mind. Investments are categorized into two types: long-term and short-term. Long-term investments are designed to provide investors with a substantial return over a long period of time i.e., decades. Short-term investments are designed to provide investors with a higher return over a shorter period of time i.e., month-to-month basis.

Mutual funds, individual stocks, bonds, and derivative instruments are some of the common types of investments. Mutual funds are groups of investments where a manager invests the collective money of investors. An important thing to note is that mutual funds are usually categorized as top down. The manager invests in a basket of securities, which are then invested in other baskets of securities. In this manner, the manager pools his funds and looks for the securities which have higher chances of earning high interest.

Equity investment includes any equity owned by a company. A typical equity is the difference between total stock and value per share (the earnings per share). Common equity is generally of two types: common equity and preferred equity. Common equity is generally of two types: common equity preferred equity.

One of the most commonly made financial instruments are derivatives. Derivatives are financial instruments that are related to the price of the underlying asset. Some derivatives are useful in hedging a financial risk. Examples of common derivatives are interest rate caps, foreign exchange rate derivatives, credit default swaps, cross rates and default swaps. All types of derivatives can be complex and should only be handled under the supervision of an experienced investment professional.