Types of Investment Instruments

Investment Instruments are available investment options which any investor, big or small, may use to store money as a safe deposit in an interest-paying account. Investors may also channel their money into other financial assets with the hope of making extra money from such assets. There are basic investment instruments, and others that are more complex. These include savings accounts, certificates of deposit, stock investments, mutual funds, hedge funds and many others.

Bank Savings Account

This is the most simple investment instrument available in the markets today. Most Americans have a savings account. A savings account is an account established at a financial banking institution which guarantees the depositor some kind of interest payment. This payment is often calculated on an annual or bi-annual basis. The total interest payment earned on a savings account depends on the offered interest rate and the total amount in the account. All savings accounts in the United States are insured by the National Insurance Corporation of America.

Certificates of Deposit

Certificates of deposit, often referred to as CDs, are investment accounts established by financial institutions such as banks for investment needs of individuals. Certificates of deposit pay considerably higher interest payments compared to savings accounts. They come with insurance provided by the National Insurance Depositors Corporation up to $100,000. One of the general characteristics of CDs is that when you buy a CD, you hold it for a predetermined period of time in order to earn the stated interest payment.

Stock Investment

Stocks are investment vehicles for persons interested in stocks. When companies go public, they roll out stocks or shares after launching their Initial Public Offering (IPO). These are in line with the Securities and Exchange (SEC) regulations for the stock markets. Once these stocks are registered, they become available to investors. When you buy a stock, the company registers a stock certificate in your name to cover your investment. You may sell your stocks at any time. Your stock market investment may or may not earn you money. Stocks generally go up in value over time, but they may also go down in value.

Mutual Funds

Mutual Funds are investment strategies run and managed by professional money managers. When you buy a mutual fund, you get a share in the fund. Investment decisions are made by the mutual fund manager. The investor has no input into such decisions. The mutual fund manager makes investments into different assets such as stocks, bonds, commodities, hedge funds and so on. You may sell your mutual fund at your disposal. Mutual funds are somewhat different from investing in one stock because they are more diversified portfolios.

Hedge Funds

Hedge funds are advanced investment instruments for wealthy individuals. They are not available to all investors. The Securities and Exchange Commission (SEC) regulates all hedge funds. Individuals interested in hedge fund investments must be qualified under the SEC laws. Hedge funds are run and managed by hedge fund managers. They use a combination if investment strategies for trading purposes. Hedge fund managers may typically invest in stocks, bonds, derivatives, currencies, options, futures, real estate or any other asset class the manager deem suitable for investment purposes. Hedge fund managers charge two kinds of fees: annual fees and performances for their services.

References

• Kinds of Financial Instruments
• Basic Types of Investment Instruments
• Kinds of Foreign Investments