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The following is for informational purposes only

Types Of Investments & How They Work

What are the Different Investment Options?

There are several types of investments as follows:

  • Bonds are debt instruments that represent a loan made by an investor to a borrower.
  • Mutual Funds are a type of investment overseen by a portfolio manager where investors pool their funds together and team up to purchase a portfolio of securities, shares of stocks, or bonds collections.
  • Stocks are an equity investment representing the partial ownership of a company and entitle the owner to a share of its assets and profit.
  • Exchange-Traded Funds (ETFs) are investment funds that hold commodities, stocks, or bonds and are traded on stock exchanges, just like stocks are.
  • Certificates of Deposit (CDs) are one of the safest investment choices, but with a relatively low yield. They're a financial product with a fixed term and fixed interest rate, usually sold by credit unions or banks.
  • Retirement Plans are long-term investment strategies used by savers to grow their money and sustain themselves during retirement. Some - for instance, an Individual Retirement Account (IRA) - offer valuable tax breaks approved by the Internal Revenue Service (IRS).
  • Options are derivative financial instruments based on the value of primary securities such as stocks.
  • Annuities are structured insurance products guaranteed by a life insurer while approved and regulated by the state.

What To Invest In

What are the Best Investment Options in the U.S.?

investments

If you're interested in increasing your purchasing power, growing your wealth over time, and meeting your personal short or long-term financial goals, investments are a great opportunity. Depending on your attitude towards risk and the time horizon, you can opt for a wide range of investment vehicles with different potential returns and safety levels:

  • High-yield savings accounts.
  • Treasury securities.
  • Certificates of deposit (CDs).
  • Money market accounts.
  • Government bond funds.
  • Dividend stock funds.
  • Any S&P 500 index-fund.
  • Rental housing.
  • Municipal bond funds.
  • Nasdaq 100 index funds.
  • Short-term corporate bond funds.

What Should a Beginner Invest In?

Investing in the stock market is the best way to start your investment journey. Here are some well-suited choices to consider:

  • 401(k) or other employer retirement plan - you can start with as little as 1% of every paycheck, and usually, the employer matches a share of your contributions.
  • A Robo Advisor – services that manage your portfolio through computer algorithms. No minimum contribution required, and they're very cost-effective (0.25% - 0.50% of the annual account balance).
  • Target-date Mutual Funds made of a combination of stocks and bonds with higher returns over the long term.
  • Index Funds – known as a "mutual-fund on autopilot," they track a market index and could have minimum investment requirements.
  • Exchange-traded funds (ETF) – similar to index funds in their passive approach to investing. The main difference is that they're traded daily, just like stocks, and you could pay a commission whenever you want to sell or buy them.
  • Investing Platforms – Acorns and Stash are just two examples of apps that help newbie investors build a strong portfolio from scratch, with no minimum opening deposits and user-friendly fee structures.

What is the Safest Investment?

In general, U.S. Savings Bonds, Treasury Inflation-Protected Securities (TIPS), U.S. government bills, orU.S. Treasury bills – known as Treasuries - are the safest investment options because the U.S backs them. You can purchase them straight from Treasury Direct or contact a broker (who will usually sell them in $100 increments). Certificates of deposit and bank savings accounts are also very safe and low risk. The downside for all of the above is the modest return they offer.

How are Investments Split in a Divorce?

How are Investments Split in a Divorce?

Savings, financial investments, IRAs, and pension plans are included in financial settlements during a divorce. In "community property" (or "equitable distribution") states, if they're marital property, they'll be divided in half between the spouses, just like other types of property, with each party receiving a 50% share. A common exception is when the investing started before the couple got married and continued to generate profit during the marriage – and that's when complications might arise, and you might need to hire a divorce lawyer.

What Happens to my Investments When I Die?

When you die, the fate of your stocks depends on your circumstances. Four main scenarios could happen:

  • Automatic Stock Transfer – if you use a transfer-on-death or pay-on-death (POD) designation, the beneficiary appointed by you instantly inherits the stocks without going through the probate process.
  • Will-based Allocation – the beneficiaries (friends, family) named in your will must wait until the estate is probated (closed) to receive the stocks.
  • In case of Joint Ownership – stocks are not part of your estate and stay outside of the probate process. When one party dies, stocks are immediately transferred to the surviving owner, who has to approach the brokerage company and get them retitled (having the deceased's name removed from the stock certificate). The stocks will be registered in the sole owner's name.
  • Let the Law Decide – If none of the above options applies, then the state will take action on your behalf. The recipients could be a surviving spouse, children, nearest blood relatives, or, as a last resort, the state where you resided.

What is the Total Value of the U.S. Stock Market?

In 2020, the U.S. stock market is valued at $31 trillion, while the rest of the world's stock exchanges have a capitalization of $54 trillion.

  • U.S.'s NASDAQ and NYSE's joint-equity market size is larger than the next seven combined (Euronext, London, Japan, Hong Kong, China, and Canada).
  • NYSE and NASDAQ together cover 39% of the world market value, although they're the source of only 17% of the world's stocks.

Other fascinating stock market statistics are below:

  • In 2016, 52% of U.S. adults owned stocks.
  • One in tenU.S. households invests in international equities.
  • Automatic processes make 80% of the stock trading decisions.
  • The leader of the global market shares, by sector, are IT (16.3%), Financials (15.8%), and Health Care (12.6%).
  • The fastest-growing sectors are Real Estate (20% increase), Technology (25% growth), and Industrials (up with 23%).

What do Rich People Invest In?

What do Rich People Invest In?

Billionaires diversify their portfolios and focus on balancing the volatility of their stocks with tangible investments in:

  • Land.
  • Art.
  • Precious Metals (Gold).
  • Commercial and private real estate.

Statistics show that ultra-wealthy individuals like to invest and split their fortunes into the following asset classes:

  • Luxury assets and real estate (only 2.2% of their portfolios).
  • Liquid assets, including cash (26.4%).
  • Private holdings (35%).
  • Public holdings (36.4%).

Are Investments An Asset?

Why Investments are an Asset?

Economically speaking, investments are acquisitions that are not meant for immediate consumption. On the contrary, they're used to create future wealth. Financially speaking, investments are monetary assets (tangible or intangible) purchased for generating additional income over time or for speculative reasons – when a future increase in value is predicted, they're being held and sold later on, at a higher price, for a profit. More information can be found in the asset search report.

What are the Rules of Investing?

The main rules of thumb successful investors live by:

  • Don't invest in things you don't understand.
  • Know your risk tolerance before you begin.
  • Invest for the long-term.
  • If it seems too good to be true, most of the time it is.
  • Don't put all your eggs in one basket (portfolio diversification).
  • Limit gold to 5-10 % of your portfolio.
  • Review your investment portfolio, investment strategy, and liquidity from time to time.
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