7 types of investments for beginners

Key Takeaways

• There are multiple investment types you can leverage, from high-reward, high-risk investments to low-risk low-reward ones
• Investments such as stocks and crypto are more volatile and risky than REITs and Bonds
• Accessing these investment types has never been easier or more straightforward. As there are multiple trading platforms available

Introduction

As an investor, especially when you're only just starting out, it can be rather daunting to decide which investment type is best for you. You're certainly not alone, and that is why our experts have listed out the 7 types of investments you can begin exploring today.

Types of Investments

Stocks

Now stocks are certainly our top type of investment, mainly due to their popularity and the variety of different companies driving stock prices. It has never been easier to gain access to trading stocks than it has been today.

Advantages

• Easily accessible: It has never been easier to open a stock trading account and begin trading.
• Can start with any amount: Many trading platforms now offer fractional share investing, meaning you can start investing almost any amount.
• Highly profitable: It's no secret that stock trading can offer investors substantial returns. Depending on your investment strategy, it can be very lucrative.

Disadvantages

• There's a steep learning curve: Learning how to read the stock market can be very challenging and takes a long time to master.
• Profits are not guaranteed: Depending on how you invest, there is a chance you can lose more than what you put in.
• Stressful: Trading in the stock market can lead to high levels of stress, especially if stocks are extremely volatile.

Crypto

I am certain you are aware of cryptocurrencies as there have been multiple success stories surrounding them. However, it has become a very popular investment type in recent years even attracting institutional investors to invest in these digital assets.

Advantages

• Highly profitable: Crypto is well known to dramatically fluctuate in price leading to high returns. For example, Bitcoin has grown by 155,256,515.93% since 2011. Just $1 USD in 2011 would make you a millionaire today.
• Easy to access: Crypto trading, like stock trading, has become very easy to access and get started with. There are multiple platforms that support crypto trading.
• Globally traded: Crypto, unlike stocks, can be traded 24/7 and is traded globally, meaning it can be stored and accessed from anywhere in the world.

Disadvantages

• Unstable: Crypto is one of the most unstable financial assets there is. It is prone to huge price fluctuations and is easily influenced by social sentiment. Meaning, you can just as easily lose all your money in a short period of time.
• Many scams: Unfortunately, the crypto industry is littered with 'pump-and-dump' scams, meaning it could be easy to be tricked into giving your money away to scammers.
• No real fundamentals: Unlike stocks, crypto actually doesn't produce anything; it is entirely digital, and because of this, crypto doesn't produce any revenue or profit. This means crypto has no foundational support that actually gives it any value.

Exchange Traded Funds

Exchange-traded funds, or ETFs, can offer some type of security for investors. ETFs are, in principle, a group of stocks traded under a single security. For example, the S&P 500 is an ETF that invests in the top 500 companies in the USA.

Investors, such as yourself, can purchase a piece of the S&P 500 ETF, meaning you would own a fraction of every asset within that ETF. There are many types of ETFs out there, each with its own portfolio of assets.

Advantages

• Less risky: Because an ETF usually holds several stocks within its portfolio, it is less reliant on a single stock to increase or decrease, meaning it won't fluctuate as much as stocks or cryptos.
• Many types of ETFs: ETFs are not just restricted to a single industry, there are a wide variety of ETFs to choose from, for example, you can invest in space ETFs, Energy ETFs, banking ETFs, etc.
• No minimal amount: Similar to stocks, there's no minimum amount for you to begin investing in an ETF. For example, you can buy $5 worth of the S&P 500.

Disadvantages

• Slow growth: ETFs are less risky, but they are also less volatile, which means ETFs are not good at producing high returns in a short period of time.
• No control: Investing in an ETF means you don't have any control over the stocks the ETF invests in, so it's best you do your research and invest in the one you like most.

Dividends

Dividends are usually paid by companies to their shareholders from their profits. They do this to increase investors' support for its stock.

Advantages

• Passive income: Dividends are a great way to earn passive income, for example, if you invested in Company A and they paid a monthly dividend of $10 that's earning you $120/year in profit.
• Easy to access: Similar to other financial assets, dividend stocks are rather easy to invest in. There is a wide variety of stocks that pay dividends.

Disadvantages

• Small returns: Depending on your investment into a dividend stock, they usually pay a small percentage, meaning if you invest $100 into a dividend stock with a 2% yield, you will only receive $2/month in dividends.
• Volatility: Dividend stocks, even the best dividend stocks, are still prone to market volatility. This means you can still lose your initial investment.

Real Estate Investment Trusts

REITs are quite interesting assets. Many beginner investors often choose REITs due to their general stability. REITs are basically real estate managers. A REIT will own several properties, and will collect revenue from those properties. Money is then re-invested into the trust, or given to the investor.

Advantages

• Great way to start: REITs are great ways to begin getting into investing, as they are relatively stable and can offer slow but consistent returns.
• No minimum: Similar to the other assets, you can begin investing with as little or as much as you want.

Disadvantages

• Slow returns: REITs usually grow very slowly, and because of this your returns will likely be small and slow.
• Tied to one industry: REITs are entirely tied to the real estate industry, meaning if a property crisis were to happen, this could affect your investment.

Government Bonds

Bonds are very stable investment types, with a slow rate of return. How it works is, that an investor will lend money to a government, so they can build public infrastructure etc. The government pay the investor interest on that loan, usually at a fixed rate.

Advantages

• Highly stable: Government bonds are highly stable financial instruments, that produce almost guaranteed returns over a set period of time.
• Original investment return: Once a bond expires, the investor then receives the original investment back.

Disadvantages

• Limit: There is usually a minimum you need to invest in order to access a government bond. In some countries, they don't allow retail investors to invest at all.
• Locked in: Once investing in a government bond, your investment is locked for that period. For example, if you invest in a 10-year yield bond, you will not have access to your investment for 10 years.

Savings accounts

Our final investment type is less exciting, but effective nonetheless. Savings accounts are stable investment opportunities. Usually a savings account will pay interest on your savings. These accounts are often provided by banks.

Advantages

• Secure: Savings accounts are secure and guaranteed to offer a return on your money.
• Simple to set up: The process of creating savings accounts is straightforward. Most banks offer savings accounts and can help you get started.

Disadvantages

• Slow return: Because of the savings account's guarantees, the rate of return is usually very limited.
• No flexibility: Savings accounts are not very flexible, and your money is given interest just by sitting in your account.

Conclusion

As you can see, there is an array of different types of investments available to beginners. It is of course which one aligns best with your financial goals. Remember, every investment carries risks, especially highly volatile investments, so ensure you do thorough due diligence before investing.

Frequently Asked Questions

What are the 4 main types of investments?

Usually, investors focus on stocks, ETFs, Crypto, and dividend stocks. There are numerous other types of investments, but these four are among the most popular.

Can anyone start investing?

Of course, so long as they are of legal age, anyone can sign up to a brokerage platform and begin investing in stocks, ETFs, REITs, and many others.

Can AI help me select stocks?

Yes, AI has become a more popular tool when it comes to analyzing and selecting stocks. There are numerous tools you can use, most notably Intellectia offers a comprehensive AI insights tool designed for beginner and advanced investors.