One of the first steps in any investing journey is deciding which financial instruments to buy. To help you narrow down the seemingly infinite range of possibilities, we compiled a list of the most popular assets and instruments.
Choosing which one works for you best depends on your financial goals, the time period of your investments and your risk tolerance. Remember that it’s crucial to build a diversified portfolio, meaning that investing all your money in a single type of asset is not the best strategy.
Online savings account. It is a simple online cookie jar where you can set aside money which you can then access easily when you need it.
Retirement accounts. This could be a retirement plan through your work, like a 401(k), or Individual Retirement Accounts (IRAs) which are available in the US, but other countries have similar setups. These are great ways to save for retirement as they allow you to invest in your future in a tax-efficient manner.
Stocks. In most people's minds, investing in stocks is what they think of when they think of investing or the "market". Stocks represent a degree of ownership in a company, they can be purchased on the market via a broker or through mutual funds and index funds.
Bonds. Bonds are loans to a government, public institution or a company, which will be paid back to you in a certain amount of time with interest. Bonds tend to be more stable than stocks and you know exactly when and how much you will be paid. But they also give you a lower return, so this could be an option for you if you are uncomfortable with too much risk.
Mutual fund. It is a mix of various investments put together, which makes it easier for you to buy a collection rather than individual stocks that you pick on your own. It is also less risky than individual stocks. Check the management fees of the funds, usually anything above 1% can cut too deep into your investments.
Index fund. It is a type of mutual fund that follows the performance of a specific stock market index, like the S&P 500 or the Dow Jones. Index funds are also called passive funds. They charge lower fees than actively managed mutual funds.
ETFs, or exchange-traded funds. The funds hold several investments, but are traded throughout the day like stocks. They are also purchased for a share price, which is often lower than the minimum investment requirement for a mutual fund.
Futures and other derivatives. With these products you basically speculate on the future price of the underlying asset. A contract between two parties obliges them to buy and sell the asset for a predetermined price on a specific date. The futures market is different from the spot market in that the instruments or commodities are not delivered immediately but in the future.
Commodities. Whether it is oil, gold, wine, vintage cars, or anything else, it is a physical thing that you trade. You can invest in them through futures or ETFs too.
Forex trading. The foreign exchange market is where currency pairs are traded. You are basically buying one currency while selling another in the hopes of closing the position with a profit.
To get started you need to open an investment account with a broker. Some require a minimum deposit, which could be as low as $1,000. Check the fees and other costs a broker might charge as these can add up easily.
If you don’t want to dive into the world of investing on your own, check out a so-called robo-advisor. These are digital platforms without basically any human oversight that provide algorithm-driven financial advice based on your financial profile and goals.
What can you invest in?
Where to look for more?
If you want to dig deeper into the various aspects of investing, check out the following articles: