Read Types of Investments or Asset Types – I
Stocks/Equities
This is perhaps what most people think of when you mention Investments. When you buy a share or stock in a company you are buying a piece of the company itself. Thus stocks can provide you with one of the highest rate of return, but also offer a very high amount of risk. Stocks are very complex to pick can have their own post. But basically, stocks should be part of any portfolio if you plan on any decent growth in your wealth.
Liquidity : High; Returns : High; Safety : Low
Mutual Funds
Mutual Funds are basically a portfolio of assets managed by a professional fund manager. Since multiple people invest into a mutual fund, this also means that the portfolio of a fund is not restricted by your cash availability (as your portfolio will). This allows a fund manager to take some long term high value calls that you personally may not be able to. For the work done by the fund manager you pay a fund management fee. Also mutual funds allow you to hold some assets that may be too costly to own on your own (e.g. Real Estate).
Usually equity MFs have lower risk that pure equities as they are usually actively managed and also they are more diversified. More on MFs later.
Liquidity : High; Returns : Medium; Safety : Medium
Bonds
Bonds are basically government or company debt that is tradable. Bonds carry an fixed or floating interest and a maturity period. Interest payments may be compounded or paid on predefined intervals. You can think of this like a fixed deposit, but that is traded. Also bonds are usually long term (though there are US treasury bonds with maturity as small as 3 months).
Liquidity : Medium; Returns : Low-Medium; Safety : Low-Medium
These are most of the common asset types. We will discuss some of these types in detail in later posts.
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