Types Of Investment

 There are a variety of investment types, I am not talking about crypto currency but more about traditional, predictable investment, for example:

·         Equity

·         Bonds

·         Property

What is Equity ownership?

Equity is when you purchase a miniscule fragment of a company, therefore having ownership in the losses and profits the company made. If a certain individual or company owns large amounts of equity in a company, they become a shareholder. The owner of a business is simply the person with the largest amount of equity in a company. For example, Elon Musk is the largest shareholder of Tesla and thus the owner of the business. Stock is just traded equity.

How do investors assess whether they should invest?

They first judge which of the companies are worth investing in by looking at their finances (oversimplification, too much information for this blog). Then they investigate whether the equity is a value equity or a growth equity.

How are they different?

A value equity- meaning that the stock is currently undervalued and has high prospects to grow in the future. Or a growth equity- which has high growth, most likely overvalued with higher volatility (value fluctuations).

Value equity is a preferred method of investment in large wealth management funds and Warren Buffet as it has a low risk (of losing money) and usually outperforms growth equity in the long run (5+ years). However, growth equity produces high reward paired with a higher risk, generally outperforming growth equity in the short run, thus is popular with several investment firms.

What are bonds?

These are fixed income investment. Bonds are very stable; this is because they are not influenced by the world, and they are set to grow by a certain percentage per-annum (yield) until they mature (the bond cannot gain more value). Based on time of maturation of bonds there are short-term (< 3 years), medium-term (4-10 years) or long-term bonds (> 10 years). However, the only thing that can reduce the value of bonds outside of a crisis, would be if inflation rates are higher than the bond’s percentage increase. Again, there are two types- Gilts and Corporate.

What is the difference?

Gilts are government issued; they are more safe than corporate bonds as they are protected by the issuing government. Corporate bonds are less safe as they are insured by the company, moreover the bond has a higher yield than Gilts. If a company goes bankrupt, bond owners can put forward a claim to receive a portion of the value of their bond, thus corporate bonds are less reliable than government bonds.

What does property investment consist of?

This deviates slightly from the traditional view of property investment. Most think that this would be leasing, buying, and selling houses or offices for a profit, through remodelling et cetera. They would be right, as this is called direct property investment except there is another type of property investing. This would be indirect property investment this consists of buying stock/equity in trust companies, Real Estate Investment trusts. However, property investment has a few problems. Such as inaccurate valuation of funds, simply due to the nature of housing. Which could cause large losses, as in the world of finance, accuracy is highly important.

There will be a part 2 of different types of investments, this will be coming out on the 19^th November. Part 2 will go over the more interesting types of investment, the type which is commonly used by hedge funds and other large financial institutions.