When you begin investing, you will notice that there are many types of investments.  You don’t necessarily want to invest in every one, you should choose at most a few.  Preferably, if you are a beginner you should choose just one type.

Here are explanations of the most basic types of investments available.  Hopefully they will get you on your way towards building a great portfolio of investments.

Stocks

Stocks are probably one of the most common types of investments.  They are also able to make you the most money out of any investment if used right.  Some people might get lucky speculating with other types of investments, but generally, stocks are the best way to earn a lot.

Stocks are considered an equity investment because when you buy stock in a company, you are buying part ownership in the company.  You become a shareholder of the company.  You can vote at shareholder meetings, but you don’t have much control unless you own a large percentage of shares.

In order to earn money from stocks, you must buy it at one price and sell it for a higher price.  This is where things get tricky and you must start doing work.  You have to do research to decide which stocks are good choices that will earn you money.

There are other ways to earn money with stocks such as collecting dividends, selling short, using derivatives, etc. but this is the most basic way and you can do very well using this technique.  The other ways aren’t better ways to make more money, they are just other ways.

Bonds

Bonds are also common but are a debt security instead of an equity security like stocks.  Instead of owning anything, you are lending money in return for a promise to make more money.  For example, if you buy a $1,000 bond with a 3% interest rate and 1 year to maturity, in one year, you will be repaid $1,000 plus $30 in interest.

Bonds carry much less risk than stocks which is why people who are close to retirement invest more in them.  Because there is less risk, they are also less likely to have a high return.  If you want to balance your portfolio between risk and reward, you can have a combination of stocks and bonds.

Mutual Funds

A mutual fund is a mix of all different kinds of securities.  It can be a mix of hundreds of stocks, bonds, or both.  Instead of buying stock in a company, you buy a piece of a pool of different investments.

This is a great investment for those not interested in choosing their own investments and spending a lot of time with it.  They can get a well-diversified investment by only choosing one mutual fund.

Real Estate

Real estate is pretty easy to understand.  You buy some land or a building and then sell it for a higher price.  Some people buy and sell immediately while others take some time to fix it up for a higher profit.  You could also rent out properties to make money.  Real estate is a little harder to get into because you usually need a good amount of money to begin with.

Other Types of Investments

These are hardly the only types of investments you can choose from.  There are also derivatives, currency, commodities, and others to invest in.  You can invest in one type of investment or diversify across many different ones, it is your choice.

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