2649: 4 Different Types Of Investments Beginners Should Know About by Courtney Luke of Arrest Your Debt

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[00:01:09] This is Optimal Finance Daily, episode 2649.

[00:01:13] Four different types of investments

[00:01:15] beginners should know about

[00:01:17] by Courtney Luke of arrestyourdebt.com.

[00:01:21] And I'm your host and personal finance enthusiast,

[00:01:23] Diana Mariam. Welcome back to Optimal Finance Daily. And I'm your host and personal finance enthusiast, Diana Merriam.

[00:01:25] Welcome back to Optimal Finance Daily.

[00:01:28] This is where I read a personal finance article to you every day of the week with permission

[00:01:32] from the authors.

[00:01:34] So with that, let's get right to it as we optimize your life. 4 Different Types of Investments Beginners Should Know About

[00:01:46] By Courtney Luke of ArrestYourDeath.com

[00:01:50] When beginning the journey into investments, the first step is to learn the basics of the

[00:01:55] venture.

[00:01:56] This of course involves financial planning, understanding risk appetite, and grasping

[00:02:01] the kind of commitment necessary.

[00:02:04] After that, it may appear overwhelming to find out where to make the first investment.

[00:02:09] With so many different markets and asset types, it may be difficult to decide where to start.

[00:02:15] For instance, many have tried investing in crypto because of the hype surrounding this

[00:02:19] particular type of investment.

[00:02:22] These people jump the gun and get a digital wallet. Only to realize that the

[00:02:26] volatility of the cryptocurrency market makes it a challenging investment for beginners to get

[00:02:32] into. However, it's still best to keep an open mind when building a diverse portfolio.

[00:02:39] Luckily, some assets are great for beginners to look into early on. If you're just starting out as an investor, here are a few different types of investments

[00:02:48] for you to learn about.

[00:02:50] 1.

[00:02:51] Savings Accounts As one of the simplest types of investments,

[00:02:56] a savings account is a great investment opportunity open even to non-investors.

[00:03:00] It's easy to set up and it arguably has the lowest risk of any

[00:03:05] financial asset. This is because of its transparency since investors are giving

[00:03:10] clear numbers on its interest rates, the steady returns on their investments.

[00:03:15] Getting into this type of investment is as easy as opening an account and

[00:03:20] depositing cash. However, it's important to note that the return on investment for

[00:03:24] this particular asset isn't as high as others. Take it the best results. Investors should

[00:03:30] research further into getting the best interest rates offered by different banks. In particular,

[00:03:36] they should find the highest yield returns. Fortunately, these are offered most often

[00:03:41] by online banks, which are easy to find. Number 2. Mutual Funds

[00:03:47] While savings accounts offer steady financial growth,

[00:03:51] the results may not satisfy investors prepared for more.

[00:03:54] This might tempt some investors to skip straight to a more aggressive market.

[00:03:59] However, certain types of investments can still earn dividends at a steadier rate

[00:04:04] while still

[00:04:05] being relatively secure in terms of risk management.

[00:04:09] This is why investors have the option to enter a mutual fund.

[00:04:13] Mutual investment funds allow multiple investors to group their funds to be allocated into

[00:04:17] various assets.

[00:04:20] These funds are handled by portfolio managers who do most of the work in terms of research

[00:04:24] and decision-making.

[00:04:26] They primarily act in the best interests of the investors and conduct research into

[00:04:31] the fund's portfolio and how it can best be managed.

[00:04:35] Despite these conveniences, this type of investment does incur service fees for managing this

[00:04:40] portfolio and the fund.

[00:04:42] Likewise, entry into a mutual fund often demands higher minimum

[00:04:46] deposits to join. In exchange, the investment is treated as a security since it's immediately

[00:04:52] diversified by virtue of the portfolio. Number three, exchange traded funds.

[00:04:59] Exchange traded funds, or ETFs, work very much like mutual funds except with a bit more nuance

[00:05:05] to where the investment goes.

[00:05:08] Investors can place their money into a fund which is used to purchase additional assets.

[00:05:13] ETFs have a generally lower barrier to entry because they act more like shares on the stock

[00:05:18] market.

[00:05:19] These funds require a bit more thought before fully committing to them.

[00:05:24] First of all, the trading done with this fund is more aggressive and more frequent than

[00:05:28] with mutual funds.

[00:05:29] Second, each fund focuses on particular industries and sectors rather than simply having a generally

[00:05:35] diverse portfolio.

[00:05:37] Finally, there are a variety of ETF classes catered to stocks, bonds, commodities, and

[00:05:43] currencies, among several others.

[00:05:51] Beginner investors should study their options for ETFs since these are not as safe as mutual funds.

[00:05:56] They rely on the performance of their assets without the same cushions that a more diverse portfolio has. Investors must be as familiar as possible with the sector of their chosen ETF.

[00:06:03] possible with the sector of their chosen ETF. And number four, individual stocks on a stock exchange.

[00:06:08] Nearly everyone knows about the stock market,

[00:06:11] but that does not make it as friendly

[00:06:12] as the previous three investment types.

[00:06:15] In a sense, this type of asset can be seen

[00:06:17] as an introduction to intermediate level investing.

[00:06:21] Investors can typically function independently,

[00:06:24] meaning there's no need for portfolio managers

[00:06:26] or investment pools.

[00:06:28] Instead, investors can decide exactly where their money goes.

[00:06:32] While this may sound quite intimidating at first, it comes with greater freedom and transparency

[00:06:36] about how your funds are used.

[00:06:38] Obviously, it's because you make every decision.

[00:06:42] This requires tremendous research, since investors have to know the companies

[00:06:46] in which they want to invest in

[00:06:48] and their respective industries.

[00:06:50] What most investors tend to do

[00:06:51] is choose companies that they're already familiar with.

[00:06:55] If they already trust their product or service,

[00:06:57] they can more easily stand behind

[00:06:59] their investment stability and potential growth.

[00:07:02] However, this does not make it a secure investment

[00:07:04] compared to a savings account.

[00:07:06] On the other hand, stocks can be easier to track because of this familiarity.

[00:07:11] There are still many other types of investments beyond this list.

[00:07:15] For example, there are bigger markets such as real estate and commodities

[00:07:19] and more complex assets such as bonds and hedge funds.

[00:07:23] These are not for beginners, but they're potential options down the road.

[00:07:27] However things go, it cannot be understated that research is crucial to investment activities.

[00:07:33] It's just as important to know when to go all in with a particular investment as it is to get out.

[00:07:39] Furthermore, new investors will have to learn more about the liquidity in their assets as they venture further into more lucrative markets and investment types.

[00:07:48] Hopefully, this has been helpful to those who have just started to build their portfolio.

[00:07:56] You just listened to the post titled, Four different types of investments beginners should

[00:08:01] know about by Courtney Luke of arrestyourdebt.com and I'll be

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[00:09:50] I found this article a little bit confusing.

[00:09:54] If I was going to outline four different types

[00:09:56] of investments for beginners,

[00:09:58] I would talk about stocks, bonds, real estate,

[00:10:01] and entrepreneurship.

[00:10:03] I don't consider a savings account an investment, though you can park your cash in a high-yield

[00:10:08] savings account.

[00:10:09] Mine is currently at Citbank, where I'm getting 5% interest, which is actually pretty

[00:10:14] good.

[00:10:15] But most of my money is invested in the stock market.

[00:10:19] Mutual funds, ETFs, and individual stocks are all traded on the stock market, so I thought it

[00:10:26] was confusing to break them out into three different kinds of investments.

[00:10:31] They aren't really.

[00:10:32] They're just different ways to group the same type of asset.

[00:10:36] ETFs are not more risky than mutual funds.

[00:10:39] They're both a collection of assets that are going to be more diversified than buying

[00:10:44] an individual stock.

[00:10:46] A mutual fund is a type of investment vehicle consisting of a portfolio of stocks, bonds, and other securities.

[00:10:54] Mutual funds give small or individual investors access to diversified professionally managed portfolios.

[00:11:01] But many of them are actively managed so they can come with high fees.

[00:11:05] ETFs are usually passively managed and track a market index or sector sub-index.

[00:11:12] But passive index funds can be purchased both as a mutual fund or an ETF.

[00:11:18] So for example, I always talk about buying low fee total market index funds. At Vanguard, which is a brokerage I use, the mutual fund version of the total US stock

[00:11:30] market index is known as VTSAX.

[00:11:34] And the ETF version is VTI.

[00:11:38] They are both total market index funds, but they differ slightly in the way they are traded.

[00:11:45] But that should do it for today, have a happy rest of your day, and I'll see you tomorrow

[00:11:49] as usual, where your optimal life awaits.