Managing your personal finances and the types of investments you make can be both exciting and disappointing. Exciting because of the world of new opportunities that trading has, and disappointing when you make poor investment choices. Knowledge is the key.
In this blog, you can learn more about five of the most popular investment types and the risks they pose.
#1 Bonds
Bonds are debt securities either of a company, the government, or an organization. They are also called fixed income securities because their interest rate is predetermined at the time of issuance. With bonds, you are essentially lending money to the bond issuer who will pay you regular interest, as well as the sum of your initial investment when the date of maturity (the “expiration” date) comes.
Benefits
It is considered a generally safe kind of investment. It allows you to gain more interest than what you would likely generate in a checking or savings account.
Risks
Interest rates can fluctuate, and investors should be wary of choosing struggling companies. The issuer might not be able to pay you back when redeeming the bond.
#2 Stocks
Stocks (also known as shares or equities) are the most popular investment vehicle people use. They give you ownership rights of the company whose stocks you have acquired. Stockholders have voting rights, which means they have decision-making influence. If you invest in stocks, you will get dividends based on the company’s profit.
Benefits
Stocks are ideal for adventurous investors as they are really flexible. You can decide what to buy, how much, and when. You can do the same when you’re selling, too. There are no time constraints when trading with stocks.
Risks
When you have decided to invest in stocks, you are essentially betting that a particular or group of stocks will succeed. Bad press, economic disturbances, the list of factors that can drive down the price per share are many, so be careful.
#3 Mutual Funds
Mutual funds are managed by an investment manager, which means you can have your money in a portfolio of stocks, bonds, or both. Distribution can be in the form of interest, dividends, and capital gains.
Benefits
You can invest a small amount of money in many different companies instead of making individual investments that come with their own fees and terms. You can also choose to entrust the management of your investment to a professional manager who can better decide which bonds and stocks to sell or buy.
Risks
Mutual funds are priced once a day, at 4 p.m., which means you can sell your funds at that specific time only. That makes them a less flexible investment.
#4 ETFs
ETFs (exchange-traded funds) resemble mutual funds in several aspects; however, the difference is they are traded on the stock market during the day, like shares. If you are interested in direct oil prices investing, you can do that by purchasing commodity-based oil ETFs. For example, acquiring a single share of the U.S. Oil Fund (USO) can give you exposure to roughly one barrel of oil.
Benefits
Unlike mutual funds, ETFs are more dynamic as you can make investment decisions while the stock exchange is open.
Risks
Being massive investments, ETFs are associated with index risks, tracking errors, counterparty risks, volatility, and trading within foreign market closures, to name a few.
#5 Investing in Oil
When it comes to oil prices investing, you have many options for getting involved in the market. These options generally range from directly investing in oil as a commodity to indirect ownership of energy-related equities.
Due to lower risks, investors can choose to profit from oil indirectly by purchasing energy-sector ETFs (like the iShares Global Energy Sector Index Fund) and energy-sector mutual funds. These funds generally represent a lower risk as they invest only in the stocks of oil and oil service companies.
Other investors prefer direct ownership and purchase oil futures or oil futures options. These are highly volatile and risky.
Benefits
There are tax advantages to be gained by investing in oil, as part of your share can become tax-sheltered income.
Risks
Although oil investments have multiple tax benefits, and often yield fast returns, they do not come without their fair share of risks. The market price of oil fluctuates all the time, which means profitability depends on many temporary circumstances.
Final Thoughts
Even if you decide to entrust your finances to an investment manager, understanding the logic behind different investments is crucial. Dr. Kent Moors has decades of successful trading experience, especially in the oil and gas markets, making him a great choice for aspiring investors. So, start planning!
