In the world of investing, there is more than just stocks and bonds. There are additional types of investments, such as commodities or real estate.
When you buy a commonstock you are buying a piece of a company. Some of the more established companies will pay you a dividend, but there is another type of stock called preferred stock. You are still buying a piece of the company, but you are more likely to be paid dividends on a regular basis. Also, if the company goes under, you have a higher likelihood of getting your investment back.
A bond is purchasing debt in a company. Businesses issue debt in order to fund further investments for the company. There are different types of bonds/debt, and each type is treated differently. Similar to a preferred stock, a bond will pay you interest every six months, and in the event the company goes under, holders of debt get paid before shareholders (stocks).
A commodity is any raw material or agricultural product you can buy and sell. Examples are oil, gold, silver, copper, corn, coffee, etc. Gold and silver are often used as a “hedge” for investor’s portfolio. Farmers will buy commodity futures for their crops, also as a hedge, in case the price for their crop decreases.
Real estate investing can be done in one of two ways. You can either physically buy the property or you can invest in a REIT or Real Estate Investment Trust. A REIT is essentially a basket of properties for an investor who doesn’t want to physically purchase a property. This gives them the ability to a) invest in real estate at a lower cost and b) diversify amongst a number of properties.
A partnership is a type of investment that usually requires a lot of capital to get into and is more risky than most investments. By investing in a partnership, you are becoming one of the partners. You can either be a Limited Partner or a General Partner. If you choose limited partner, your initial investment is all that is at risk. If you choose general partner, your initial investment is at risk as well as anything that you own.
As I mentioned, there are various types of investments you can choose from. Each investment comes with its unique advantages, disadvantages, and risks. In the blog posts that follow, I will go into detail about these various types of investments, starting with stocks.
All investments have risks associated with them. Please consult with a financial adviser, tax adviser, or another financial professional before investing.