Different Types of Investment for Beginner Entrepreneurs
There are several types of investment however, these investments are categorised into four main groups, or asset classes.
Each of these different types of investment split into two sub-categories has its distinct characteristics, risks, and benefits. These characteristics are often used by investors to determine the type of investment they can choose from.
Once familiar with the different types of investment, you can begin to think about piecing together a mix. It is imperative to choose a mix of what would fit with your personal circumstances and risk tolerance.
The different types of investment are split into two sub-categories.
- Growth investments: Long-term investments in shares or property.
- Defensive investments: Consistently generated income such as cash and bonds.
Types of Investment – Growth Investment
These types of investment are more suitable for long term investors that are willing to withstand market ups and downs.
Shares are considered a growth investment. This is because they can help grow the value of your original investment over the medium to long term.
If you own shares, you may also receive income from dividends. Dividends are effectively a portion of a company’s profit paid out to its shareholders.
Sometimes, the value of shares may also fall below the price you pay for them. Prices can be volatile from day to day and shares are generally best suited to long term investors.
Also known as equities, shares have historically delivered higher returns than other assets. Shares are considered one of the riskiest types of investment.
Property is also considered as a growth investment. This is because the price of houses and other properties can rise substantially over a medium to long term period.
However, just like shares, property can also fall in value and carries the risk of losses.
It is possible to invest directly by buying a property but also indirectly, through a property investment fund.
These types of investment are more focused on consistently generating income. They are considered lower risk than growth investments.
Cash investments include everyday bank accounts, high interest savings accounts and term deposits. This types of investment typically carries the lowest potential returns of all the investment types.
While they offer no chance of capital growth, they can deliver regular income. They can also play an important role in protecting wealth and reducing risk in an investment portfolio.
The best-known type of fixed interest investments are bonds. Bonds are essentially when governments or companies borrow money from investors and pay them a rate of interest in return.
Bonds are also considered as defensive investment because they generally offer lower potential returns. Also, they offer lower levels of risk than shares or property.
They can also be sold relatively quickly, just like cash. However, it is important to note that they are not without the risk of capital losses.