Did you know that over 47% of Americans aren’t investing their money? Many who opt not to invest do it because of the financial risks attached to investments. However, not all financial investments are high-risk.
Read on to learn more about financial investments and the common types.
What Are Financial Investments?
A financial investment is an asset you put money into hoping to get a return. The idea is to invest a larger amount of money that you can sell later on.
There are different ways to invest money that depend on how much time you have. For example, if you are trying to make money within a year, you may want to choose a less risky option. If you are saving for retirement beginning in your 20s or 30s, you can afford more risk.
The key terms to consider when learning about the definition of financial investments are appreciation, dividends, and interest.
Appreciation refers to the amount the investment grows. A stock you bought for $20 is now worth $30 which means it has appreciated $10.
Dividends are generally cash payments that are paid through financial investments based on the earnings of a business. Interest is a fee from the government, bank, or institution paid to you for loaning money through a bond or CD purchase. With a checking or savings account, you can earn a little amount of interest.
A few common types of financial investments include:
CDs or certificates of deposit earn interest over a specific amount of time. They can be anywhere between 30 days and 5 years. They are low-risk options that are usually issued by banks.
Purchasing a bond means lending your money to a government entity or a company. You earn interest on the money you provided and will eventually be paid back. They are riskier than CDs, but often provide a better return on investment.
Stocks are referred to as ownership in part of a company. When you buy a stock in a business, you are a small owner of it. When the company gains profits, you receive a portion of them depending on how much you put into the company.
The profits are dividends that can appreciate depending on the success of the company. For those looking for long-term benefits, stocks could be the right option for you. However, they are considered a high-risk investment.
Check out this guide to trading stocks to get your investments started.
Mutual funds are a collection of stocks and bonds overseen by a professional. They focus on a specific investment that can pay through dividends. Mutual funds are both low and high-risk depending on the type of fund you invest in.
Generate More Money With Financial Investments
Along with these common financial investment types, there are more to choose from. Some are tailor-made for beginners looking to earn extra cash while others require more knowledge and experience. Before generating money through financial investments, you must understand the risk to reward ratio to find the right asset that aligns with your goals.
For other articles on financial investments and more, check out our blog.