Are you looking to create income outside of your regular job? To do so, you need more money than a month and then make that cash work for you. This is done through the world of investing.
Investing may seem like a broad term, but the process is simple; you are buying assets to increase over time to provide a capital gain. There are several ways to do this, and you probably have heard of several. If you are new to investing, it can be daunting, but we can make that path a little clearer by laying out the different types of investing.
Type #1: Cash Equivalencies
Equivalent cash investment is a good place to start if you want a quick, short-term investment where your money isn’t tied up too long. These are secure investments that are low risk and have lower rates of return but are there to park your money to make something rather than keeping cash in a jar.
These include:
- Savings account
- Savings bond
- GICs
- Money market fund
- Short-term government bonds
These can readily be turned back into cash when needed and are typically securities that mature in less than 90 days.
Type #2: Fixed Income Securities
This longer-term investment can provide a steady interest income stream over a period. They are less liquid than cash equivalencies but offer a more attractive interest rate. Some examples are:
- Bonds
- Mutual funds
- CDs
- Term deposits
- GICs
- EFTs
With a bond, you are lending your money to the government, and they pay you a fixed interest rate until it is paid back in full. They are a safe investment with a guaranteed rate of return and should be part of your investment portfolio.
Type #3: Stocks
A stock is an equity share in a company that you can purchase to gain fractional ownership. These units are typically called shares and allow those that hold them to gain a proportion of the corporation’s assets and profits. Companies issue stock shares to raise capital for their operations and growth, and you invest with the hope that they will do well and, in turn, increase the value of your shares.
Buying stocks can be done through an investment firm, a portfolio manager or, more commonly, an online brokerage. There is typically a fee for buying or selling stocks, and you can use an advisor’s guidance or research yourself to know when to make transactions.
Types of active stock trading include:
- Scalping Holding onto stocks for a few seconds to a few minutes to make money off fluctuations.
- Day Trading This involves buying and selling stocks within the same day to profit from price movements in the short term.
- Swing Trading With swing trading, you buy stocks and hold them for a few days up to several months. You follow mark trends and news while avoiding any emotional trading practices.
- Position Trading holds securities for a long period, including several months to years and beyond. Your goal is to profit from major trends instead of price movements in the short term.
Type #4: Real Estate
Investing in real estate is a great way to increase wealth as you build property equity and grow your net worth over time. You can invest in the following:
- Rental properties
- Commercial buildings
- Vacation Properties
- Raw land
- New home construction
- Renovating
Type #5: Mortgage Investor
Besides buying properties as an investment, you can also become a mortgage investor and fund other people’s property purchases. This involves becoming a:
Direct Mortgage Investor
You are acting as a private lender and providing the funds to a borrower. They, in turn, pay you interest for a specified term as you take all the risk while gaining all the investment rewards. You conduct this investment transaction like a bank.
Syndicated Mortgage Investor
A syndicated mortgage investor is part of a group that pools money with other lenders to fund various projects for which borrowers need money. Set lending terms, and monthly payments with interest are split up based on your commitment and lending involvement. A minimum amount often needs to be invested in becoming involved and a qualifying net income.
Type #6: Other Assets
Other investments that can be lucrative include:
- Gold
- Foreign currency
- Hedge funds
- Options
- Futures
These are usually higher yields but come with a higher-than-average risk and are usually held by higher net-worth investors.
Cryptocurrency is a newer investment vehicle that buys and sells digital currency not attached to fiat currency. You purchase cryptocurrency from exchanges and apps or through brokers, and you can track, buy and sell this digital asset to make a profit.
We all should invest in making our money work for us. If you want to start investing, check out these different vehicles and build wealth for you and your family.