Investing Terms: Types of Investments

There are a lot of terms available in the investing world. It’s important that you familiarize yourself with as many terms as you can to avoid confusion that might lead to you making mistakes. Here are some of the essential terms you need to know when it comes to the types of investments you can get your hands on:

This represents the amount of money loaned to the entity that issued the bond.

A bond issuer usually promises to pay back the entire principal load at the arrival of the future day, something known as maturity date. It will then pay interest income based upon a coupon rate in the meantime.

Types of bonds include: Treasury bonds, corporate bonds, savings bonds, and tax free municipal bonds. There are also investment grade bonds with AAA rated bonds being the highest, and junk bonds, the lowest. If you wish to buy bonds in a bulk or collectively, you can invest in bond funds.

Common Stock
This represents ownership in a legally formed corporation. Most companies have a single kind of stock that represents its entire common equity ownership. While others have multiple classes of stock, which includes dual classes of stock.

As an owner of a common stock, you will be entitled to a portion of share of a company’s earnings, this can then be distributed as cash dividends.

The best of the best stocks are normally referred to as blue chip stocks.

Preferred Stock
This is a kind of hybrid security though technically is an equity, it somewhat behaves as a common stock while also acting as a bond.

In general, plain vanilla preferred stock can be obtained at par value. An example of par value is when a $1,000 share has a fixed coupon, let’s say it’s 5 percent, you – the owner – will then be able to receive $50 a year until the preferred stock is redeemed. This then makes it highly sensitive to interest rates.

There are also different types of preferred stock, like the convertible preferred stock.

Real Estate
This is a tangible property. This can be classified as lands or buildings. Classification of a real estate is wide ranged. A real estate is something that you can use or let others use in exchange for a payment known as rent.

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