Investment vehicles are the options through which you can invest with the goal of making a profit.
There are different types of investment vehicles. They range from well-known kinds like stocks and bonds to unconventional ones like precious metals and works of art.
Ideally, you need to have more than one to diversify your portfolio and help manage risks.
What are the different types of investment vehicles?
There are a number of ways to classify investment vehicles, such as how you buy them and how they can make money.
1. Types of investment vehicles according to how you invest
When investing, you can either do things yourself or have someone else do it for you. This is where direct and indirect investment vehicles come in.
- Direct investment vehicles
As the name suggests, direct investment vehicles allow you to acquire an asset directly. Examples of these are stocks, bonds, and real estate.
You won’t usually involve someone else in managing direct investments. You’ll have to decide when to invest and how much money to put in.
To do this, you should understand how the market works and what might happen to your money.
- Indirect investment vehicles
With indirect investment vehicles, you won’t directly own assets. Instead, your money will go into a pooled fund that assigns a level or degree of ownership according to how much you put in.
Such funds have professional managers who take care of the research and decision-making. Examples of these are Unit Investment Trust Funds (UITFs), mutual funds, and exchange-traded funds (ETFS).
2. Types of investment vehicles according to their characteristics
What exactly happens to your money after you invest it? That depends on the unique features of each investment vehicle. Here are some examples:
- Ownership investment vehicles
With ownership investment vehicles such as stocks, you buy assets that will hopefully increase in value over time. These assets can be sold to someone else when you’re ready to let them go. These may also give you dividends as a reward for ownership.
- Debt investment vehicles
For debt investment vehicles, you lend money to a company or the government. The borrowers are expected to pay you interest and give back what they owe after a certain period.
Bonds, bills, and notes are typical examples of these.
- Cash and equivalents
Cash and equivalents are investments that are considered as good as cash. This is because they’re highly liquid or easy to convert to cash when you need to.
- Pooled funds
Some pooled funds include both ownership and debt vehicles in their portfolios. This offers advantages, like giving your money the potential to grow while benefitting from regular income at the same time.
Cash equivalents can also be included in certain pooled funds for liquidity purposes.
Frequently asked questions about investment vehicles
1. What are the best investment vehicles in the Philippines?
The best investment vehicle largely depends on your situation and preferences. There are factors to consider like your risk profile, money goal, and time horizon.
You should know how much risk you can take, how long you’ll invest, and the amount of money you’d like to achieve. Then, you can start looking into choices that fit your goals.
2. What is a safe investment vehicle?
There are no risk-free investments, but some are less risky and are therefore considered “safer” than others. Low-risk investments include Money Market instruments which are suitable even for conservative investors.
Keep in mind that the lower the risk, the lower your potential returns.
3. Which investment vehicle has the most risk?
Investments with values that rise and fall quickly and significantly are the ones that pose higher levels of risk. They are also the most likely to grow your money since potential returns rise as risks increase.
These investment vehicles include stocks and funds that invest mostly in stocks. If you have an aggressive risk appetite, you may consider adding these assets to your portfolio.
There are also systemic and systematic risks that you might face while investing.
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