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Types of Investment

Types of Investment

An investment is an item or asset acquired for the purpose of increasing its value or generating income. According to finance, investing means buying a monetary asset with the understanding that this asset will later generate income or be sold for a profit.

Types of Investment

Investments can be classified into three types: ownership, lending and cash.

Ownership Investment

This is the most profitable and volatile type of investment. Here are some examples of this investment:

• Stock

Literally, a stock is a certificate stating that you own shares or part of a company. All securities traded, whether futures or currency swaps, are unique investments because they only own the contract. Purchasing one of many investments gives you the right to acquire a portion of the value of the company to take certain actions.

The market value of the assets in which you own a right determines your profit expectations. Suppose you own Apple stock and report a record dividend. Other investors will also want Apple stock. Demand for these stocks drives the price of the stocks up. This will increase your profit if you sell these shares.


Cash equivalents are investments that can be easily converted back into cash. For example:

• Money Market

Money market funds have a very small return of 1–2%, and the associated risk is also small. These funds are more liquid than other types of investments, and checks can be drawn from financial market accounts such as checking accounts.

• Certificate of Deposit (CD)

Savings certificates with specified maturity dates and fixed interest rates that can be issued for amounts other than the minimum investment requirements are called certificates of deposit. There is a limit to the arrival of funds until the maturity date of the investment. After the maturity date, investors can withdraw the full amount of principal and interest earned.

Investing in cash equivalents is not intended for long-term investment incentives, such as retirement. The yield does not tend to be sufficient to keep up with inflation once taxes are paid.


Since lending investment is less risky than stock investments, the return is also lower. Bonds issued by a company pay a fixed amount over a specified period of time, but they pay much more than a bond as the company's stock can double, triple, or more in value.

• Bonds

A debt product in which an investor lends money to an agent (issuer) or company in exchange for periodic interest payments and returns the face value of the bond on the bond's maturity date is called a bond. Governments and many states, agencies, local governments, and corporations issue bonds. Interest on municipal bonds is exempt from state tax, and state residents are exempt from state tax. Interest on government bonds is taxed only at the government level.

Like stocks, bonds can also be purchased on the secondary market or as new offerings. Bonds increase or decrease in value based on several factors. The most important of these is the direction of interest rates. Interest rate movements are inversely proportional to bond prices. That's all about types of investment. Thanks for reading!

Faisal “Everybody is a genius. But if you judge a fish by its ability to climb a tree, it will live its whole life believing that it is stupid.” — Albert Einstein

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