Coming at investing without a formal education in finances can be a challenging experience. It can be difficult to know what the best options are for your situation. By looking at the most common types of investments, you can get a better understanding of investing, and this will help you to make more informed decisions.
Private Equity
This concerns investing in private companies, those not open to public investments, such as in the stock market. It typically involves using investments to pursue new start-ups, venture capital, and company growth. The investment, along with gains, is returned to the investor upon exit, or if the company goes public.
Direct Investments
Where private equity investments involve giving your funds to one company to invest for you, here you invest directly in one start-up. Sometimes called angel investing, this involves financing someone else’s business idea. For that reason, this is a high risk/high yield investment and your returns will depend on how well the business succeeds.
Venture Capital
A subcategory of private equity investing, this involves investing in early stage or growth stage companies. Funds are dispersed to businesses based on predetermined factors, including location, industry, or the type of funding requested. The companies seeking these investments typically don’t have access to public funding options, which makes this a risky option for investors, but the eventual earnings may be worth it. Past start-ups that succeeded and brought hefty returns to investors include companies like Google, Facebook, and Twitter.
Real Assets
While real estate is one way to go, this category covers a wide range of investments in physical assets. You may choose to invest in oil or precious metals, or your investments might be in luxury vehicles, jewelry, or fine clothes. Collectibles, such as baseball cards and World War II memorabilia, also fall under this category.
Hedge Funds
These are similar to private equity and venture capital funds in that the investing company will disperse your funds to a number of investments. The difference here is that hedge funds invest in public companies. One advantage of hedge funds is that investors have greater access to their money.
Funds of Funds
This is an investment strategy that diversifies your money among several smaller funds. Your money is divided up among multiple managers, employing a variety of approaches.
Private Placement Debt
Here, you’re investing in debt and, since the debt belongs to private companies, they’re not rated by credit agencies. The company is usually financed with promissory notes, while the investors receive a steady flow of earnings.
Each type of investment listed above carries a varying degree of risk. In most cases, the higher risk carries an increased chance of higher returns. If you’re concerned about suffering a big loss, you may want to consider investments that carry less risk.