Let's face it—you can invest in just about anything these days. Not long ago, the idea of paying millions of dollars for a JPEG of a rock would seem ridiculous. But alas, here we are.
Today, investment opportunities are seemingly endless, especially with the advent of crypto and equity crowdfunding. This makes it a great time to put your money to work, and a little education will go a long way to make your investment journey a smooth one.
In this post, we will cover why investing matters, including an overview of some popular places you can park your money and watch it grow.
Why invest?
Not that long ago, you could walk into a bank (yes, actually inside the building), open up a savings account or certificate of deposit ("CD"), and walk out with a double-digit return on your money. These days, you're lucky if you find a savings account that pays over .5% or a CD over 1%.Â
Don't get us wrong; keeping a short-term savings account for emergencies and other unexpected financial commitments is important. But, to potentially achieve long-term growth, you may have to invest in assets that have the potential to produce higher returns.
There are several reasons why investing your money is important. First, when you create wealth through long-term investing, you have the potential to establish a safety net that can protect you when you need it the most.Â
What’s more, investing may allow you to save for the unexpected (e.g., unemployment) and for the expected, like big purchases and retirement. Investing also helps build self-discipline, which puts you in a better position to live the life you desire.
Note: not all long-term investments yield positive results. There is always the possibility that you will lose some or all of your capital.
Types of investment opportunities
To many, the thought of investing is unnerving. This makes sense since there are so many investments to choose from—it can be daunting to know where to start. But the process of learning doesn't have to be complicated.Â
The best way to get acquainted with new investment opportunities is first to understand how they work and then find the ones that fit your needs.
Let's take a look at the most common types of investments first and then dig into the newer, lesser-known categories.
StocksÂ
Most people have heard of stocks. They've been helping investors build wealth for over a century, and they're pretty easy to understand. When you buy stock in a company, you buy a piece of its future successes or failures. These "pieces" are called shares and represent your ownership interest in a company.Â
Risks
Market risk: The value of stocks are always fluctuating, and there is always the risk that a stock will go down in value.Â
Credit risk: Risk that the company itself will fail.
BondsÂ
Bonds have been around for a long time, too. They were first launched in the U.S. in 1935 as Treasury Bonds. Since then, several new types of bonds have been introduced into financial markets with varying levels of risk.
A bond is a debt instrument classified as a fixed-income security. Risk-averse (low-risk) investors favor fixed income because they have the potential to pay interest.Â
Unless you're investing in high-yield bonds ("junk bonds"), your chances of earning a high rate of return are slim. However, when part of a well-balanced portfolio, bonds can serve as a safety net when stocks go down due to the inverse relationship the two share.
Risks
Interest rate risk: The risk that interest rates will rise, causing the value of bonds to fall.Â
Credit risk: The risk that a bond issuer will default on their payments. This can happen if the issuer experiences financial difficulties, or if they simply decide to stop making payments.Â
Mutual funds
Mutual funds are “baskets” of securities that can include stocks, bonds, and short-term debt. Investors pool their money into these professionally-managed funds to achieve greater diversification than investing in individual stocks and bonds.
Unlike stocks, most mutual funds (open-end funds) can only be sold (redeemed) once a day at the end of the day. Since this is the case, the majority of mutual funds don't fluctuate throughout the day. Instead, they are given one price each day, reflective of whatever happened in the market on that day.
Risks
Market risk: the value of the fund can rise and fall in response to changes in the overall market. often have fees associated with them, including management fees, expenses, and load fees.Â
REIT
Real estate investment trusts ("REITs") are similar to mutual funds in how they pool money from groups of investors. However, where they differ is their investments—instead of investing in stocks and bonds, REITs invest in real estate (primarily in commercial properties).Â
REITs have the potential to be high-income-producing vehicles. While they can deliver a steady income stream for investors, they may not be the best investment for capital appreciation.
For this reason, most REIT investors are individuals with large sums of capital or retirees looking for extra income rather than long-term principal growth.
REITs can be traded on exchanges like stocks and ETFs, making them more liquid than mutual funds. They most commonly invest in properties that host several businesses making regular rent payments, such as offices, apartment buildings, warehouses, data centers, medical facilities, offices, retail centers, etc.
Risks
Market risk (real estate): REIT prices can rise and fall sharply in response to changes in economic conditions.Â
Interest rate risk: REITs typically borrow heavily to finance their operations, making them particularly vulnerable to rising interest rates. When rates go up, REITs often have to cut their dividends in order to maintain their financial stability.
ETFs
Exchange-traded funds ("ETFs") are mutual funds' fast-paced, less expensive cousin. Like mutual funds, they pool investors' assets and invest primarily in stocks and bonds. Where they differ, however, is where and how they trade.
ETFs trade like stocks, meaning they trade "intra-day" on an exchange. During market hours, they can be bought and sold quickly. They generally track a specific index or sector and carry lower overall fees than mutual funds.
Risks
Market risk: If the stock market declines, the value of most ETFs will also decline.Â
Liquidity risk: May be difficult to sell when market conditions are unfavorable. This can lead to losses for investors who need to sell their ETFs in a hurry.
Commodities, art, and collectibles
Commodities, art, and collectibles fall under the "alternative investment" category. All three are based on supply and demand, which is why investors use them as a hedge against the stock market and inflation.
 Commodities are a broad category but are primarily broken down into four main classes—two "soft"; two "hard": agriculture (soft), livestock and meat (soft), energy products (hard), and metals (hard).
Physical art (as opposed to digital art) is a long-term investment with a time horizon of 10 years or more. Since there is a market for artwork, it has its fair share of ups and downs. However, other factors can influence its price, including its uniqueness and the artist's reputation.
The most valuable collectibles are typically rare and/or old. However, sometimes a mass-produced product can become a valuable collectible (remember Beanie Babies?).Â
New types of investments
Cryptocurrency and other digital assets
Cryptocurrency has come a long way since Satoshi Nakamoto mined the genesis block way back in 2009. According to Pitchbook, global investors poured over $30B into digital assets in 2021.
Contrary to popular belief, digital assets include much more than Bitcoin and NFTs. These popular cryptocurrencies are just one part of the vast digital asset ecosystem.Â
Here are some digital assets you might not be familiar with:
Utility tokens are the most common digital asset investments. They're the coins (mostly Ethereum-based) that are supported by a project.Â
Security tokens are similar to a share of stock or to a debt instrument, where each token represents a share of equity (ownership) in the issuing company or is a debt obligation that pays a rate of return.Â
Bitcoin investment trusts offer exposure to Bitcoin and other cryptocurrencies. They trade in over-the-counter (“OTC”) markets.
Risks
Cryptocurrency markets are highly volatile, so prices can fluctuate rapidly. This can result in sizable losses for investors. Cryptocurrencies are also subject to hackers and scams.
Learn how to protect your digital assets here.
Private investments
If you Google "private investments," you'll likely get results on "private equity," meant for institutions and high-net-worth individuals. But investing in private companies is no longer just for the rich. Now, with platforms like Republic, equity crowdfunding allows anyone to invest in big ideas with a nominal amount of cash.Â
Some good things to remember: investing in early-stage companies is a high-risk, high-reward endeavor, so it's extremely important to diversify by investing in multiple companies across different sectors and industries.Â
And patience is a virtue… nascent, private companies can take several years (7-10 or more) to have a trigger event where investors realize a return (but there's no guarantee that they will).
Risks
Investments in startups (including early-stage ventures and emerging technology companies) involve a high degree of risk. Financial and operating risks confronting startups are significant. Loss of an investor’s entire investment is possible and can easily occur.Â
So, what have we learned?
Investing doesn't have to be scary—a little education can go a long way to turn anyone into a confident investor. By understanding the different types of investment vehicles available, you can feel empowered to invest your money in a way that meets your specific goals.Â
The most important thing to remember is that the most successful investors follow strict asset allocation strategies. They make sure to diversify their assets, so when one goes down, another may go up. And, they never get involved in an investment that presents more risk than they are willing to take.
Want to learn more about diversifying your startup portfolio? Here are a couple of articles to read next:
5 steps to diversify your portfolioÂ
Diversification: The proven strategy VCs use to win
Reading to start your private investing journey?
The content herein is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.