Types of investments
When making an investment, it's important to consider your risk tolerance, investment goals, and the time period you expect to hold the investment. Long-term investments can include stocks, bonds, real estate, mutual funds, and exchange-traded funds (ETFs):
- Stocks: These are investments in a company's assets and earnings. Investors can buy and sell shares of stocks through brokerage accounts. Stocks can be risky, and it is wise to diversify capital among 25 or more companies with quality underlying businesses.
- Bonds: A debt security that represents a loan to a company or government. Bondholders receive interest payments and the loan amount back on a specific date.
- Mutual funds: A collection of assets, like stocks and bonds, managed by a portfolio manager and designed to meet specific investment goals. Mutual funds have fees, which are deducted from the fund's returns, and invest in a range of companies and industries. Mutual funds are typically actively managed and trade once a day, unlike stocks or ETFs.
- ETFs: An ETF is a collection of assets that trades on a stock exchange. ETFs are similar to stocks and can be bought and sold throughout the trading day. ETFs are made up of a variety of assets, such as stocks, bonds, currencies, and commodities. Index ETFs tack the performance of an index, such as the S&P 500, while sector and industry ETFs provide exposure to a specific industry, like tech.
There are many other types of investments that some investors may consider, including residential or commercial real estate. A real estate investment trust (REIT) is a company that owns and manages income-generating real estate. Many REITs are publicly traded, allowing investors to diversify their portfolios by investing in a variety of properties.
