Classifications of Investments

Investments can be classified in many forms. Here are 6 classifications of investments:

Securities vs Properties

Securities are related to ownership of a business or other assets. Bonds, shares and options are some of the examples of securities. Meanwhile, properties can be in the form of real properties or tangible personal properties. Real properties refer to land, building and and all immovable improvements on land. Tangible personal properties include gold, antiques and other valuable collectibles.

Direct vs Indirect

Direct investments shall mean acts of acquiring stakes directly on securities or properties. For instance, buying bonds, shares and real properties to gain profits or to preserve values. An indirect investment, on the other hand, refers to an investment made in a portfolio. Purchasing mutual funds can be considered as indirect investments as you do not invest directly to the security of a company.

Debts vs Equities vs Derivatives

Debt shall mean invest your capital as a loan to earn interest. You may expect your capital plus interest to be repaid to you upon maturity. Purchasing a bond is a clear example of this.Equity refers to ownership of a business or assets. Buying ordinary share is the common type of equity. Derivative is quite different from debt and equity. The value of derivative is obtained from the underlying assets. You are allowed to buy or sell a security or asset at a specific price in a specific period of time. The example of a derivative is an option.

Low Risk vs High Risk

The higher the potential of earning by an investment vehicle, the higher its risk and vice versa. That is why a bond is considered a low risk investment, while a stock is generally related to high risk.

Short Term vs Long Term

A short term investment usually matures within a year. A long term investment, on the other hand, refers to longer period of maturity or even without maturity.

Domestic vs Foreign

Domestic investment shall mean investing your capital within your own country, while, with the aid of technologies, foreign investment has been made easy for those who intend to invest overseas via online trading.

This entry was posted in Uncategorized. Bookmark the permalink.