Finance and Law

3 Main Types of Investing

3 main types of investing

If you consider yourself a good money manager, you, probably, already have a certain percentage of your monthly earnings put aside for savings. If you don’t have one, than either do it at once, or don’t consider yourself a good money manager. You can never be sure if there is or isn’t an emergency just around the corner, waiting to bust your next big move on the stock market, so it is advised that you have an emergency savings fund for such moments. And they will happen, eventually. Saving money in a typical bank account comes with disappointingly low interest rates, though.

A nice way to go can be investing in a financial product. With it, your initial investment can bring a significant profit over a certain period of time, but it comes with a risk. And also, the higher the risk, the more profit you get. There are three types of investing, which all have their up and downsides.

3 main types of investing

If you are new to the world of investments there are a few fundamentals you should be aware of. For starters, there are three types of investing that you can use, and those are:

Active Investing

Active investing is exactly as the name suggests – active. It requires you to take on the full set of responsibilities, considering the particular investment in question. For example, you chose to put your money on stocks. Since this is a kind of active investing, you would have to decide on the timing of the acquirement and potential selling of the shares, you would have to do the extensive market analysis and deal with all the tasks related to handling this type of project. Other examples of active investing are shares, futures, options, currency trading, property trading as well as buy-and-hold share portfolio building.

Passive Investing

Passive investing is the exact opposite of active investing, and that means that it involves handing over the very tasks we talked about, to other people. Needless to say, if you decide on investing passively, you should get hold of trusted people with expertise. These people are also called investment managers, and they, probably, already have some knowledge about the stock market and the ways it works. When you hand over the rights to direct your funds to such a person, they gain the right to make crucial decisions concerning where and when they will invest your money. Another type of passive investing is “index funds”.

In comparison to simply buying and selling stocks, index funds involve simply buying a particular index in the market. If you, for example, bought the A1 index, your fund will imitate the given index’s performance thus giving you ownership over the same stocks it has. This approach does not need a deeper insight when it comes to the stock market, or index funds, or any other investment options and that is why many beginners in the investment word go for it. Savings accounts, property trusts, mutual funds and government bonds are the other examples of passive investing.

Creative investing

Those who think they have become experts in this type of investment products, or at least advanced enough, can move on to creative investing. What this means is that you take a kind of a freestyle way of investing. Value investing is one example of this kind, since it involves buying a seemingly worthless piece of junk and investing it to perfection.  Property development, renovation, new product development or marketing are also examples of creative investments. Note that this is some advanced stuff, and not only does it require professionals doing it, but it also has a high risk rate to it. However, it can lead to very prosperous results.

To minimize this particular, but also any other risk, and concerning any of the three given options, it is important to know the ins and outs before you give your money away. Not knowing these details can make you waste precious capital. Also, impulsive shopping may sometimes (and that’s far-fetched, too) work when you buy clothes, but when it comes to investing money, everything works with a few more strings attached. Any and all investments can prove equally prosperous as they can prove fatal.

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