When you begin your journey throughout the world of investment and business, there are a lot of things that you need to get to grips with incredibly quickly if you’re going to stand a chance of succeeding, but with there being so much to learn, things can often seem more daunting or confusing then they actually are.
In this guide, we’re going to look at investment vehicles, including what they are, and what the types of investment vehicles are, so you can understand which investment vehicle might be best suited for you!
What Is An Investment Vehicle?
Simply put, an investment vehicle is a product which is used by investors in a business to gain positive returns.
Investment vehicles typically tend to be incredibly low risk products and are usually simple items such as Certificates of Deposit, otherwise known as CDs, or bonds.
Investment vehicles can include higher risk products too, such as options, stocks, or even futures.
Alongside these are annuities, which can also act as a form of investment vehicles, including things such as collectibles, art or coin collections, mutual funds, as well as exchange-traded funds, which are also known as ETFs.
Explaining Investment Vehicles
Essentially, investment vehicles are a method in which either a business or an individual is able to invest money and in an ideal scenario, grow their money further.
The wide variety of investment vehicles available means that those looking to grow their money will tend to spread their money across various different investment vehicles and create investment portfolios.
This diversification helps to minimize the risk of the investor losing their money, as well as being more likely to yield better returns in the long term.
Types Of Investment Vehicle
Investment vehicles do have to undergo a level of regulation in the jurisdiction where they are provided.
With each type of investment vehicle having its own set of rewards and risks.
This section of the guide will take you through the various different types of investment vehicle so you can make an informed decision as to which one is going to be suited for you to invest in.
The investment vehicle that’s best suited for you will take into account a lot of factors, including market knowledge, financial investment skills, tolerance of risk, ultimate financial goals, as well as your current financial situation.
Ownership Investments
These investment vehicles are assets that an investor feels is going to grow in value.
The ownership can be of a variety of things, whether it’s real estate, stocks, business, or even precious objects.
Stocks (Also called equity, or shares) give the investor a stake in the company in which they invest in, including their profits and gains.
Investors looking to invest in real estate are very hands on, and you can either sell the property onwards for a higher price, or rent the property out.
As an investor in precious objects, this can include things such as art, certain precious metals (see also ‘How To Invest In Nickel‘) or jewellry, and are used as long term holds in which you can sell for a profit.
In addition to all of this, capital that has been used to build a business that provides products and services for a profit is also considered a form of investment vehicle.
Lending Investment
This is an extremely common form of investment vehicle, and is when someone allows their money to be used by either another person, or another entity, with the promise and expectation that it will be paid back.
However, the lender charges interest on this loan, so once the money has been repaid, they’ve also made a profit from the initial money they lent.
Whilst this investment is low risk and low reward, it’s probably one of the best forms of investment vehicle.
Examples of this include certificates of deposit, bonds, as well as Treasury Inflation Protected Securities (Also known as TIPS).
When investing in bonds, the investor allows their money to be utilized by either a corporation or the government, with the expectation that the money will be repaid, alongside the profit from the fixed interest rate that the loan features.
Certificates of deposit are usually offered by banks (see also ‘Where Do Banks Invest Their Money?‘), as a way of locking an investor’s money away in a savings account that has a higher interest rate than usual.
Treasury Inflation Protected Securities are bonds which are offered to investors by the U.S treasury, and are made in order to help protect investors from inflation rates.
If an investor places their money into a TIPS, they get their principal as well as their interest returned once investment has matured over a certain period of time. These are then both indexed for inflation.
Cash Equivalent
Typically coming in the form of money market funds or savings accounts, a cash equivalent investment is a form investment that is typically considered to be as good as cash.
The investments are liquid, and have lower returns than other options on this list.
Pooled Investments
Sometimes, multiple investors will pool together their resources in order to invest in something they wouldn’t have been able to do individually, which is extremely beneficial for those looking to gain an advantage.
These investments usually come in the form of bonds, hedge funds, mutual funds, pension funds, private funds, and unit investment trusts (also known as UITs).
Summary
So hopefully after reading through this guide, you now have a more comprehensive understanding of what an investment vehicle is, and what they can be used for.
As you can see, the forms of investment vehicles are incredibly varied and it is important that an investor carefully considers the risks associated with the investment vehicle they decide to choose.
If help is required, a financial advisor should be able to help guide you to a suitable investment vehicle after completing an assessment on your financial situation and goals.
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