Types of Investment Opportunities
In a free market economy, like the United States, investment opportunities abound. Types of opportunities may vary, yet many investments can be categorized by common variables such as level of risk and time needed to realize a gain. Because the majority of financial advisers stress diversification, having different types of investments in a personal portfolio adds to the security of the investor's overall financial interests.
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Stocks and Bonds
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As a general rule in the investment world, the higher the rate of return expected, the higher the level of risk involved. For example, stocks may earn 10 times as much over an annual period as bonds. Conversely, stock prices are volatile and may plummet the following year, losing all the prior gains, plus more in some instances. On the other hand, highly-rated bonds may produce lower levels of return, yet the income is steady and may be more dependable than capital gains and dividends realized from stock holdings. Bonds are commonly called fixed-income investments. The buyer knows upfront what yield -- rate of return -- to expect over the life of the investment.
Mutual Funds
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Mutual funds are a popular type of investment opportunity in the United States. A mutual fund may invest in stocks, bonds, commodities, derivatives, cash accounts, real estate, or may hold an interest in a combination of investments, such as one part stocks, one part bonds and one part cash. In today's market, a mutual fund can be found for almost any type of investment an investor wishes to pursue. Some funds are actively managed, meaning those in charge try to outdo the market by consistent buying and selling. Other funds may be passively managed, such as a mutual fund that parallels a major market index.
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Real Estate
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Investing in real estate, especially when prices are on the way down, is generally considered a low-risk type of tangible investment. The value of the investment may fluctuate over time. However, historically, with the exception of short-lived hikes and declines, the value of real estate increases over time. For the average investor, real estate may be considered a long-term investment. In other words, the buyer does not intend to sell the property soon after purchase.
Derivatives
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In colloquial terms, derivatives are made-up financial products -- an investment with its value based on the future value of some other type of investment. For example, Mr. Moneyman may agree to buy a specific amount of gold from Ms. Bullion at a set price which will be delivered at a set date. Regardless of the price of gold at the agreed upon date, Mr. Moneyman has contracted to purchase. If the price of gold rises significantly before Mr. Moneyman takes delivery, he gains. If the price of gold falls before Ms. Bullion hands over his purchase, she gains. Futures contracts, or derivatives, based on commodities, such as precious metals and agricultural products, are a popular type of investment traded among experienced investors.
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