Canto 2

Three Kinds of Investments

These notes are going to focus on three main kinds of investments: cash, income and equity. There are other kinds of investments, which I'll briefly list at the bottom, but other than in this note I'm going to ignore them.

Cash

This category of investments has very low risk of dropping in value, but doesn't rise much either. Because of the low risk, investments in this category don't pay much in the way of interest or dividends. In fact, sometimes a good savings account at an on-line bank will pay a higher rate of interest, so there is kind of a fuzzy line between this category of investment and your savings. People who are saving for something they'll need the money for in less than five years should include a lot of cash type investments in the mix. More information on cash type investments.

Income

This category of investments has a higher risk of changes in value than the cash category, but also tends to have higher dividend payments. Income securities are usually called bonds. They can be issued by governments at all levels, or by companies. Here are a few of their key features:

People who are saving for a long term objective should probably include some income investments in the mix. More information on income type investments.

Equity

This category of investment has the highest risk of changes in value among these three types, but also has the highest potential for profits. Equity securities are usually called stocks, or shares in a company. They are issued by companies. Some stocks pay dividends to the shareholders and some don't. People who buy the stocks that don't pay dividends are expecting to make a profit when the shares go up in value. Here are some of their key features:

People who are saving for a long term objective should probably include some equity investments in the mix. More information on equity type investments.

Have I Oversimplified?

Yes, in several ways. Here are some:

What Kinds of Investments Have I Left Out?

I've left out lots of things, such as:

 


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