Investing is the act of purchasing something with the hope of receiving a return in the future for the initial outlay. Simply put, to invest implies that you are buying an asset with the intention of making a profit in the short or long term from your investment or the sale of the asset which is an increase in the market value of the asset over some period of time. There are several different types of investments available to anyone and it is up to the individual investor to understand each type and determine how they fit into their overall financial strategy. Some of the most common investments available are: fixed income, stocks and bonds, commercial property, residential real estate property, options, futures and commodities. While these are all excellent investments and hopefully you have knowledge of at least one or two of these types so that you can discuss them further with a qualified investment professional.
Fixed Income Investments are investments that are paid either on a monthly, quarterly, or annual basis; a portion of the profits from these investments are set aside as an investment capital reserve and is used to pay the principal as well as interest on loans or other securities when the time comes. One of the most common fixed income investments is the annuity. An annuity is designed to be a steady source of income. When an individual starts to reach middle age or even early retirement, they usually find themselves looking for ways to ensure that their financial needs will be met as they begin to age. As many people know, when you reach the point where you start to need funds to secure your future, you tend to rely on liquid investments such as the stock market or the bond market only to find that you are not able to properly fund those investments.
Here are some examples of common fixed income investments. The U.S. Treasury Bonds are issued by the federal government. These are guaranteed by the full faith and credit of the United States Government. Some of the most popular U.S. Treasury Bonds are the discount rate bonds which have a low interest rate but also come with a long term guarantee. Government bonds are often chosen as a portion of diversification for the investor. Other potential investments include mortgage-backed securities, municipal, corporate, and other assets.
Another example of an investment with both tax advantages and a good return potential is real estate. Real estate includes commercial, residential, and other assets like stocks and bonds. Investing in real estate allows an investor to buy property for resale and later sell it for a profit, or use it as rental real estate. When purchasing real estate, it is important that the individual do research on the particular asset category in order to determine its suitability as a fixed income investment.
The last option would be a Roth IRA Investing. With a Roth IRA, after retirement an individual can invest the account for its entirety. This is especially attractive to younger investors who have yet to reach retirement age and have little savings account. Once the account reaches a certain level of maturity, the distributions from the investments are no longer tax-deductible.
There are several different categories of investment and each has their own advantages and disadvantages. A wise investor will evaluate the investment’s advantages and disadvantages, the type of risk involved, and the ultimate plan for investment. It is also advisable to consult with financial planners and tax professionals in order to determine the best options for an investment. Once an investor has determined the best investment, he or she can make a wise investment plan to ensure maximum returns and minimize risks.