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Money Smart Athlete Blog

Money Smart Athlete’s investment options

When you start investing, as part of your financial freedom plan, you may decide to turn to the internet to educate yourself on the different investment options available, only to find a bunch of confusing information written in a lingo that seems designed to scare you. The truth is that the basic principles of investing aren’t that scary at all. By being aware of the basic principle that the riskier the investment, the higher the potential return, you are in a position to make some basic financial decisions.

To be able to choose amongst different investments you need to have some knowledge about the different investment categories and their characteristics. The most common types of investments are grouped into three general categories: ownership, lending and cash equivalents and we set below some basic information in all three groups of investments.

Ownership Investments

Ownership investments are considered the most volatile and profitable class of investment.  When you purchase an ownership investment or equity as it’s alternatively called, you own an asset or part of it. You expect the value of this asset to increase, thus giving you a return on your investment. The value of the asset is determined by fluctuations of its relevant market. Some examples of ownership investments are:

Stocks

When you own stock in a company, you partially own the company and have a right to a portion of the company’s value. You can profit by how the market values the asset you own. If the company posts a big profit, investors will want to own its shares, driving up demand for them and thus increasing their price. You can profit by selling your shares at a higher price than the price you bought them.

Business

Being an Entrepreneur by putting your money in a new or running business, is not an easy job, as it requires not only money but also your time and an entrepreneurial mind set. That aside, it is an ownership investment with high potential returns. People such as Bill Gates of Microsoft and Elon Musk of Tesla have made huge personal fortunes by creating products and services and selling them to the market.

Real Estate

Buildings that you buy to rent out or repair and resell are considered ownership investments.  The latest financial crisis followed by the housing market crash is a good illustration of the risks associated with investing in real estate. The house you purchase to live in is not considered an investment, as it’s not purchased with an expectation of profit.

Precious objects and collectibles

Precious metals, art and collectibles, if bought with the intention to resell for profit, can all be considered ownership investments. There are risks associated with owing these investments since if you don’t take good care of them, they might be damaged and depreciate in value.

 

Lending Investments

Lending investments usually bear a lower risk than ownership investments and have lower returns as a result. If you choose to invest in a bond issued by a company you will receive a set amount over a certain period, while if you choose to invest in a stock of the same company you might get double or triple the money or lose all of it if it goes bankrupt, in which case bondholders usually still get their money and the stockholder often gets nothing.

Your savings account

The money you deposit in your savings accounts are essentially being lend to the bank, which loans it out to other people. The low return you get is associated with the minimum risk you have since deposits are protected up to a certain amount by authorities such as the FDIC in the USA and EDIS in Europe.

Bonds

Bonds are basically debt obligations, a form of borrowing money. The issuer of the bonds receives money which has to repay over time, including periodic interest that has to be paid to the lender. The risks and returns will depend on the financial status of the issuer of the bond and type of bond, but overall, lending investments are considered lower risk and lower return than ownership investments.

 

Cash Equivalents

Cash equivalents are investments that can be readily converted into cash and are characterized as low-risk, low-return investments. There are five types of cash equivalents: Treasury bills, commercial paper, marketable securities, money market funds and short-term government bonds.

 

Making money through investing requires researching and evaluating different investments, not simply knowing the basics about investments. You need to be guided by a licensed professional on setting up an investment strategy based on your financial plan goals. For more information you may contact us at athena@apc-sport.com

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