Investing involves deploying capital toward projects or assets that are expected to generate a positive return over time. There are various types of investments including stocks, bonds, mutual funds, real estate, and more. Each investment carries different levels of risk and potential return. Investors can manage their own portfolios or hire professionals to do so. Starting small with as little as $1,000 allows people to begin growing their money through long-term investing.

1. Investing Explained: Types of Investments
and How to Get Started
What Is Investing?
Investing, broadly, is putting money to work for a period of time in some sort
of project or undertaking in order to generate positive returns (i.e., profits that
exceed the amount of the initial investment). It is the act of allocating
resources, usually capital (i.e., money), with the expectation of generating an
income, profit, or gains.
One can invest in many types of endeavors (either directly or indirectly) such
as using money to start a business, or in assets such as purchasing real
estate in hopes of generating rental income and/or reselling it later at a higher
price.
Investing differs from saving in that the money used is put to work, meaning
that there is some implicit risk that the related project(s) may fail, resulting in
a loss of money. Investing also differs from speculation in that with the latter,
the money is not put to work per-se, but is betting on the short-term price
fluctuations.
KEY TAKEAWAYS
 Investing involves deploying capital (money) toward projects or
activities that are expected to generate a positive return over time.
 The type of returns generated depends on the type of project or asset;
real estate can produce both rents and capital gains; many stocks pay
quarterly dividends; bonds tend to pay regular interest.
 In investing, risk and return are two sides of the same coin; low risk
generally means low expected returns, while higher returns are usually
accompanied by higher risk.
 Investors can take the do-it-yourself approach or employ the services of
a professional money manager.
 Whether buying a security qualifies as investing or speculation depends
on three factors—the amount of risk taken, the holding period, and the
source of returns.
Understanding Investing
Investing is to grow one's money over time. The expectation of a positive
return in the form of income or price appreciation with statistical

2. significance is the core premise of investing. The spectrum of assets in which
one can invest and earn a return is a very wide one.
Risk and return go hand-in-hand in investing; low risk generally means low
expected returns, while higher returns are usually accompanied by higher
risk. At the low-risk end of the spectrum are basic investments such as
Certificates of Deposit (CDs); bonds or fixed-income instruments are higher
up on the risk scale, while stocks or equities are regarded as riskier.
Commodities and derivatives are generally considered to be among the
riskiest investments. One can also invest in something practical, such as land
or real estate, or delicate items, such as fine art and antiques.
Risk and return expectations can vary widely within the same asset class. For
example, a blue chip that trades on the New York Stock Exchange will have a
very different risk-return profile from a micro-cap that trades on a small
exchange.
The returns generated by an asset depend on the type of asset. For instance,
many stocks pay quarterly dividends, whereas bonds generally pay interest
every quarter. In many jurisdictions, different types of income are taxed at
different rates.
In addition to regular income, such as a dividend or interest, price
appreciation is an important component of return. Total return from an
investment can thus be regarded as the sum of income and capital
appreciation. Standard & Poor's estimates that since 1926, dividends have
contributed nearly a third of total equity return for the S&P 500 while capital
gains have contributed two-thirds.1 Capital gains are therefore an important
piece of investing.
Economists view investing and saving to be two sides of the same coin. This
is because when you save money by depositing in a bank, the bank then
lends that money to individuals or companies that want to borrow that money
to put it to good use. Therefore your savings is often someone else's
investment.
Types of Investments
Today, investment is mostly associated with financial instruments that allow
individuals or businesses to raise and deploy capital to firms. These firms
then rake that capital and use it for growth or profit-generating activities.
While the universe of investments is a vast one, here are the most
common types of investments:

3. Stocks
A buyer of a company's stock becomes a fractional owner of that company.
Owners of a company's stock are known as its shareholders and can
participate in its growth and success through appreciation in the stock price
and regular dividends paid out of the company's profits.
Bonds
Bonds are debt obligations of entities, such as governments, municipalities,
and corporations. Buying a bond implies that you hold a share of an entity's
debt and are entitled to receive periodic interest payments and the return of
the bond's face value when it matures.
Funds
Funds are pooled instruments managed by investment managers that enable
investors to invest in stocks, bonds, preferred shares, commodities, etc. Two
of the most common types of funds are mutual funds and exchange-traded
funds or ETFs. Mutual funds do not trade on an exchange and are valued at
the end of the trading day; ETFs trade on stock exchanges and, like stocks,
are valued constantly throughout the trading day. Mutual funds and ETFs can
either passively track indices, such as the S&P 500 or the Dow Jones
Industrial Average, or can be actively managed by fund managers.
Investment Trusts
Trusts are another type of pooled investment. Real Estate Investment Trusts
(REITs) are one of the most popular in this category. REITs invest in
commercial or residential properties and pay regular distributions to their
investors from the rental income received from these properties. REITs trade
on stock exchanges and thus offer their investors the advantage of instant
liquidity.
Alternative Investments
Alternative investments is a catch-all category that includes hedge funds and
private equity. Hedge funds are so-called because they can hedge their
investment bets by going long and short on stocks and other investments.
Private equity enables companies to raise capital without going public. Hedge
funds and private equity were typically only available to affluent investors
deemed "accredited investors" who met certain income and net worth
requirements. However, in recent years, alternative investments have been
introduced in fund formats that are accessible to retail investors.

4. Options and Other Derivatives
Derivatives are financial instruments that derive their value from another
instrument, such as a stock or index. Options contracts are a popular
derivative that gives the buyer the right but not the obligation to buy or sell a
security at a fixed price within a specific time period. Derivatives usually
employ leverage, making them a high-risk, high-reward proposition.
Commodities
Commodities include metals, oil, grain, and animal products, as well as
financial instruments and currencies. They can either be traded through
commodity futures—which are agreements to buy or sell a specific quantity of
a commodity at a specified price on a particular future date—or ETFs.
Commodities can be used for hedging risk or for speculative purposes.
Comparing Investing Styles
Let's compare a couple of the most common investing styles:
 Active versus passive investing: The goal of active investing is to
"beat the index" by actively managing the investment portfolio. Passive
investing, on the other hand, advocates a passive approach, such as
buying an index fund, in tacit recognition of the fact that it is difficult to
beat the market consistently. While there are pros and cons to both
approaches, in reality, few fund managers beat their benchmarks
consistently enough to justify the higher costs of active management.
 Growth versus value: Growth investors prefer to invest in high-growth
companies, which typically have higher valuation ratios such as Price-
Earnings (P/E) than value companies. Value investors look for
companies that have significantly lower PE's and higher dividend yields
than growth companies because they may be out of favor with
investors, either temporarily or for a prolonged period of time.
How to Invest
Do-It-Yourself Investing
The question of "how to invest" boils down to whether you are a Do-It-
Yourself (DIY) kind of investor or would prefer to have your money managed
by a professional. Many investors who prefer to manage their money
themselves have accounts at discount or online brokerages because of their
low commissions and the ease of executing trades on their platforms.
DIY investing is sometimes called self-directed investing, and requires a fair
amount of education, skill, time commitment, and the ability to control one's

5. emotions. If these attributes do not describe you well, it may be smarter to let
a professional help manage your investments.
Professionally-Managed Investing
Investors who prefer professional money management generally have wealth
managers looking after their investments. Wealth managers usually charge
their clients a percentage of assets under management (AUM) as their fees.
While professional money management is more expensive than managing
money by oneself, such investors don't mind paying for the convenience of
delegating the research, investment decision-making, and trading to an
expert.
The SEC's Office of Investor Education and Advocacy urges investors to
confirm that their investment professional is licensed and registered.2
Roboadvisor Investing
Some investors opt to invest based on suggestions from automated financial
advisors. Powered by algorithms and artificial
intelligence, roboadvisors gather critical information about the investor and
their risk profile to make suitable recommendations. With little to no human
interference, roboadvisors offer a cost-effective way of investing with services
similar to what a human investment advisor offers. With advancements in
technology, roboadvisors are capable of more than selecting investments.
They can also help people develop retirement plans and manage trusts and
other retirement accounts, such as 401(k)s.
A Brief History of Investing
While the concept of investing has been around for millennia, investing in its
present form can find its roots in the period between the 17th and 18th
centuries, when the development of the first public markets connected
investors with investment opportunities. The Amsterdam Stock
Exchange was established in 1602, and the New York Stock Exchange
(NYSE) in 1792.
Industrial Revolution Investing
The Industrial Revolutions of 1760-1840 and 1860-1914 resulted in greater
prosperity as a result of which people amassed savings that could be
invested, fostering the development of an advanced banking system. Most of
the established banks that dominate the investing world began in the 1800s,
including Goldman Sachs and J.P. Morgan.

6. 20th Century Investing
The 20th century saw new ground being broken in investment theory, with the
development of new concepts in asset pricing, portfolio theory, and risk
management. In the second half of the 20th century, many new investment
vehicles were introduced, including hedge funds, private equity, venture
capital, REITs, and ETFs.
In the 1990s, the rapid spread of the Internet made online trading and
research capabilities accessible to the general public, completing the
democratization of investing that had commenced more than a century ago.
21st Century Investing
The bursting of the dot.com bubble—a bubble that created a new generation
of millionaires from investments in technology-driven and online business
stocks—ushered in the 21st century and perhaps set the scene for what was
to come. In 2001, the collapse of Enron took center stage, with its full display
of fraud that bankrupted the company and its accounting firm, Arthur
Andersen, as well as many of its investors.
One of the most notable events in the 21st century, or history for that matter,
is the Great Recession (2007-2009) when an overwhelming number of failed
investments in mortgage-backed securities crippled economies around the
world. Well-known banks and investment firms went under, foreclosures
surmounted, and the wealth gap widened.
The 21st century also opened up the world of investing to newcomers and
unconventional investors by saturating the market with discount online
investment companies and free-trading apps, such as Robinhood.
Investing vs. Speculation
Whether buying a security qualifies as investing or speculation depends on
three factors:
 The amount of risk taken on: Investing usually involves a lower amount
of risk compared with speculation.
 The holding period of the investment: Investing typically involves a
longer holding period, measured quite frequently in years; speculation
involves much shorter holding periods.
 Source of returns: Price appreciation may be a relatively less important
part of returns from investing, while dividends or distributions may be a
major part. In speculation, price appreciation is generally the main
source of returns.

7. As price volatility is a common measure of risk, it stands to reason that a
staid blue-chip is much less risky than a cryptocurrency. Thus, buying a
dividend-paying blue chip with the expectation of holding it for several years
would qualify as investing. On the other hand, a trader who buys a
cryptocurrency to flip it for a quick profit in a couple of days is clearly
speculating.
Example of Return From Investing
Assume you purchased 100 shares of XYZ stock for $310 and sold it exactly
a year later for $460.20. What was your approximate total return, ignoring
commissions? Keep in mind, XYZ does not issue stock dividends. The
resulting capital gain would be (($460.20 - $310)/$310) x 100% = 48.5%.
Now, imagine that XYZ had issued dividends during your holding period, and
you received $5 in dividends per share. Your approximate total return would
then be 50.11% (Capital gains: 48.5% + Dividends: ($500/$31,000) x 100%
= 1.61%).
How Can I Start Investing?
You can choose the do-it-yourself route, selecting investments based on your
investing style, or enlist the help of an investment professional, such as an
advisor or broker. Before investing, it's important to determine what your
preferences and risk tolerance are. If risk-averse, choosing stocks and
options, may not be the best choice. Develop a strategy, outlining how much
to invest, how often to invest, and what to invest in based on goals and
preferences. Before allocating your resources, research the target investment
to make sure it aligns with your strategy and has the potential to deliver
desired results. Remember, you don't need a lot of money to begin, and you
can modify as your needs change.
What Are Some Types of Investments?
There are many types of investments to choose from. Perhaps the most
common are stocks, bonds, real estate, and ETFs/mutual funds. Other types
of investments to consider are real estate, CDs, annuities, cryptocurrencies,
commodities, collectibles, and precious metals.
How Can Investing Grow My Money?
Investing is not reserved for the wealthy. You can invest nominal amounts.
For example, you can purchase low-priced stocks, deposit small amounts into
an interest-bearing savings account, or save until you accumulate a target
amount to invest. If your employer offers a retirement plan, such as a 401(k),
allocate small amounts from your pay until you can increase your investment.

8. If your employer participates in matching, you may realize that your
investment has doubled.
You can begin investing in stocks, bonds, and mutual funds or even open an
IRA. Starting with $1,000 is nothing to sneeze at. A $1,000 investment in
Amazon's IPO in 1997 would yield millions today. This was largely due to
several stock splits, but it does not change the result: monumental returns.
Savings accounts are available at most financial institutions and don't usually
require a large amount to invest. Savings accounts don't typically boast high-
interest rates; so, shop around to find one with the best features and most
competitive rates.
Believe it or not, you can invest in real estate with $1,000. You may not be
able to buy an income-producing property, but you can invest in a company
that does. A real estate investment trust (REIT) is a company that invests in
and manages real estate to drive profits and produce income. With $1,000,
you can invest in REIT stocks, mutual funds, or exchange-traded funds.
Is Investing the Same as Gambling?
No, gambling and investing differ greatly. With investing you put your money
to work in projects or activities that are expected to produce a positive return
over time - they have positive expected returns. Gambling is to place bets on
the outcomes of events or games. Your money is not being put to work at all.
Often, gambling has a negative expected return. While an investment may
lose money, it will do so because the project involved fails to deliver. The
outcome of gambling, on the other hand, is due purely to chance.
The Bottom Line
Investing is the act of distributing resources into something to generate
income or gain profits. The type of investment you choose might likely
depend on you what you seek to gain and how sensitive you are to risk.
Assuming little risk generally yields lower returns and vice versa for assuming
high risk. Investments can be made in stocks, bonds, real estate, precious
metals, and more. Investing can be made with money, assets,
cryptocurrency, or other mediums of exchange.
There are different types of investment vehicles, such as stocks, bonds,
mutual funds, and real estate, each carrying different levels of risks and
rewards.
Investors can independently invest without the help of an investment
professional or enlist the services of a licensed and registered investment

9. advisor. Technology has also afforded investors the option of receiving
automated investment solutions by way of roboadvisors.
The amount of consideration, or money, needed to invest depends largely on
the type of investment and the investor's financial position, needs, and goals.
However, many vehicles have lowered their minimum investment
requirements, allowing more people to participate.
Despite how you choose to invest or what you choose to invest in, research
your target, as well as your investment manager or platform. Possibly one of
the best nuggets of wisdom is from veteran and accomplished investor
Warren Buffet, "Never invest in a business you cannot understand."3