There are several investment instruments available to investors. Each with their own level of risk and return. Remember that higher return always comes with a higher risk. And that no legitimate investment opportunity will ever come with a 0% risk. We will discuss each of these investment opportunities so you can decide which ones suit you best.

STOCKS

Stocks or shares of stock represent units of ownership in a company. Having a share of SM for example, will give you bragging rights that you are the co-owner of one of the Philippine’s largest conglomerates. A single share, however, won’t give you the power to dictate a company’s operations. You would require majority/controlling interest to be able to achieve this. Why do companies split their ownership? Selling shares of stock is one way for companies to generate cash flow.

You earn from stocks in 2 main ways. The first is by selling the stocks when its price rises above your buying price. The second is by holding it to earn dividends.

There are two types of stocks, common and preferred. Common stocks give their owners voting rights and rights to dividends when declared. Preferred shares do not enjoy the benefits of having voting rights but they are compensated by being first in line to receive dividends as well as having higher interests in a company’s assets.

BONDS

Bonds represent another way that companies generate cash flow. They are debt-instruments that allow an investor to loan money to a company. That’s right, just like stocks, buying SM bonds give you bragging rights. You can now walk around your neighborhood claiming that Henry Sy owes you money.

Aside from company’s, governments also issue bonds. These are called treasury bonds. Bonds issued by the government are generally less risky since you’re entire country has to go bankrupt for you not to get paid. These, however, offer lesser returns. Remember, the higher the risk the higher the returns.

You earn from bonds through the periodic payment of interests and the eventual repayment of the principal amount when a bond matures. A bond matures when the period of the bond is already over. The period of bonds can vary anywhere between a few months to some even reaching 20 years. Bonds normally pay interest on an annual or semi-annual basis.

FOREIGN EXCHANGE

Foreign exchange or forex is not an investment instrument per se but it an investment opportunity. Forex is a marketplace to buy and sell global currencies. This type of investment is generally high risk. This is due to the fact that the value of a country’s currency depends on several variables whose impact is neither easily identifiable nor accurately measurable. Investors typically rely on the use of technical analysis to aid them in their forex investments.

Since forex trading is high risk, several companies provide you with a fake cash balance that will allow you to practice trading without risking your life savings. This fake cash gives you access to their platform as well as real-time forex data. The data might be real, but since your cash is fake, so are your gains.

CRYPTOCURRENCIES

This is similar to forex. However, instead of trading global currencies which are used by countries, you trade digital currencies.
Cryptocurrency refers to a digital currency that is secured by various cryptographic methods. These are often used as a substitute for real currency to make fast and secure transactions online. There are several types of cryptocurrencies. The main one being Bitcoin, a cryptocurrency that reached a peak of $4400 per coin.

Cryptocurrencies are by far the riskiest investment instrument in this list. Prices are very volatile. You can have 300% gain in one day and a 500% loss the next. Another factor that makes these a risky investment is that they are a relatively new technology. New technology coupled with soaring prices due to speculation often leads to an economic bubble, similar to that of the .com bubble.

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DISCLAIMER: This was originally posted on my website www.onepesoaday.com