Investments in a small business is most likely will always be one of the most popular ways individuals and families begin their journey to financial independence; a way to create, nurture, and grow an asset that, when intelligently run under the right conditions, throws off surplus cash to provide not only a good standard of living but to fund other investments.
Investment -as the dictionary- refers to buy something with money to produce income or profit. let’s look at the basic types of investment:
Types of Investment
it refers to owning a portion of a company. More broadly speaking, all traded securities, from futures to currency swaps, are ownership investments, even though all you may own is a contract. When you buy one of these investments, you have a right to a portion of a company’s value or a right to carry out a certain action.
Your expectation of profit is realized or not by how the market values the asset you own the rights to. If you own shares in company posts a record profit. so, other investors are going to want the company shares too. Their demand for shares drives up the price, increasing your profit if you choose to sell the shares.
The money that put into starting and running a business is an investment. Entrepreneurship is one of the hardest investments to make because it requires more than just money. Consequently, it is also an ownership investment with extremely large potential returns.
By creating a product or service and selling it to people who want it, entrepreneurs can make huge personal fortunes. Bill Gates, founder of Microsoft and one of the world’s richest men, is a prime example.
Houses, apartments or other dwellings that you buy to rent out or repair and resell are investments. However, the house you live in is a different matter because it is filling a basic need. It fills a need for shelter and, although it may appreciate over time, shouldn’t be purchased with an expectation of profit.
The mortgage meltdown of 2008 and the underwater mortgages it produced are a good illustration of the dangers in considering your primary residence an investment.
Precious objects and collectibles can all be considered an ownership investment, provided that these are objects that are bought with the intention of reselling them for a profit.
Precious metals and collectibles are not necessarily a good investment for a number of reasons, but they can be classified as an investment nonetheless. Like a house, they have a risk of physical depreciation (damage) and require upkeep and storage costs that cut into eventual profits.
Bond is a catch-all category for a wide variety of investments from Treasuries and international debt issues to corporate junk bonds and credit default swaps (CDS). The risks and returns vary widely between the different types of bonds, but overall, lending investments pose a lower risk and provide a lower return than ownership investments.
Money market funds
With money market funds, the return is very small, 1% to 2% and the risks are also small. Although money market funds have “broken the buck” in recent memory, it is rare enough to be considered a black swan event. Money market funds are also more liquid than other investments, meaning you can write checks out of money market accounts just as you would with a checking account.