For those who have just started the long journey of investing and financial planning, the obvious question is: What products are available? Here is a brief introduction.
Monetary and monetary funds
Cash or CDs (certificate of deposit) generate returns in terms of interest income. Money market funds, which include high-quality, short-term debt securities, perform similarly to CDs but can be traded once per day. Although they are the safest instruments, the yield may not be high enough to offset inflation.
Actions / Actions
Owning a stock means owning a part of a business. As an owner, you make the most of the good times, but take the most risks when they are bad. Statistically, this “high risk-high return” investment gives the best long-term return on investment.
Bonds / Fixed Income Products
A bond is a loan made to the issuer of bonds (for example, a government or corporations) by an investor (for example, an individual). In return, the investor receives regular interest (the rate is called the yield) until the bond matures, at which time the issuer repays the principal.
At the same time, bonds can be traded in the market. Like stocks, bond prices rise and fall depending on many factors, and this fluctuation affects the actual return.
- Therefore, although bonds generate fixed and regular interest, they are by no means a risk-free financial instrument.
FOREX (currency exchange)
- Economies around the world use different types of currencies which creates the need to trade and exchange currencies.
- When we buy a stock or a bond of a foreign country, we are inherently buying in FOREX. For example, you live in the United States and own shares in a French company. If the Euro strengthens against the US Dollar, even if the stocks remain unchanged, you are already better off with a currency gain.
ETF (exchange traded funds)
- ETF is a basket of securities that tracks the performance of a stock, bond or commodity index.
- It can be easily bought and sold in the market (like stocks), gives you diversity (exposure to different sector / regional indices), and generally costs less than mutual funds.
- A mutual fund is a portfolio of stocks or bonds created for a particular industry, country, or product. It can be traded once a day on the basis of the price (called NAV, net asset value) calculated at the end of the day.
- Unlike ETFs, mutual funds are actively managed by fund managers and their performance can vary widely.
Real Estate / REIT
- The investment can take the form of: (1) having physical property, (2) owning shares of a listed real estate company, or (3) having shares of REIT (real estate investment trust) ).
- Real estate is an interesting and complicated type of investment and has many unique properties; but in general you can expect its return on investment to be somewhere between stocks and bonds over the long term.
- Basic products were once only open to private customers.
- As energy and commodities enter a great bull cycle, products have become very popular and related funds / ETFs are introduced to the mass market.
In addition to the above investment products, savvy investors may include structured products, hedge funds, private equity investments, and collectibles (e.g. antiques, fine art, special editions) in their portfolios. . The range and diversity of investment products could be endless!