To better navigate the investing universe, one needs to have a sense of the various investment types. Probably classification is not the hardest to understand and an important part of learning investing, but still, we need to see the big picture and all options we have nowadays.
There is a great variety of approaches how to classify investments. We will be concerned with common ones.
Investments can be classified based on the investment object:
- Financial instruments - stocks, bonds, ETFs, bank deposits, mutual funds, etc.
- Property (usually requires significant capital) - real estate, precious metals, art objects, cars, etc.
- Investing in yourself - education, health, travel, etc. (most probably the most profitable type)
By who controls investment objects:
Direct investments mean you control the object of investment - real estate, stocks, bonds;
Indirect - is directly controlled by someone else, such as a mutual fund.
Based on the term:
Short-term - less than 1 year;
Mid-term - 2-5 years;
Longterm - 5+ years.
Of course, there may be different variations, but still, this is one commonly used.
Another important point is liquidity
Liquid investments - can be easily converted into cash, for instance, stocks, bonds, etc. Of course, we are talking about big companies traded on big exchanges.
Illiquid investments - the transfer of ownership rights, take a relatively long time and the search for a buyer may take significant time. For instance real estate, stake in non-public companies, etc.
