Ownership investment explained

An investment is something that is purchased with the expectation it will produce income or a profit. There are three main types: ownership, lending, and cash equivalents.

Ownership investments are the most volatile and profitable. All traded securities, from stocks to currency swaps, are ownership investments. Profits depend on how the market values them.

Money put into starting and running a business is an ownership investment. Selling a product that people want can result in massive returns.

Real estate, artwork, gold and diamonds are other examples of ownership investments, when purchased for eventual resale rather than personal enjoyment.

Source: investopedia.com

Lending investments let you be the bank. They tend to pose less risk than ownership investments, but provide smaller returns. A corporate bond pays a set amount over a certain period, regardless of how high the same corporation’s stock soars in value. On the other hand, if the corporation goes bankrupt, bondholders are in line to get their investment back before stockholders.

A savings account is essentially your loan to a bank. The return is pitiful, but the risk is tiny.

Cash equivalents are as good as cash because they can be easily converted. They include money market funds that offer a very low return with equally low risk.

It’s important to know the difference between a purchase and an investment. Consumer purchases such as cars are not investments. They naturally depreciate over time and are not intended to provide a return.

Culled from investopedia.com


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