Once you understand why investing is important, it’s crucial to learn how to create a diversified portfolio using different types of assets.
To build a well-balanced investment portfolio, you need to distribute your money among different assets — and consider market conditions, risk tolerance, and overall investment goals.
Stocks
When you own stocks, you own a part of a company. Stocks are traded on stock exchanges, allowing investors to buy and sell shares. Historically, stocks have shown long-term growth, but their prices can be influenced by events related to the company or the overall market.
Investors can earn returns through stock price appreciation or dividends, which are a portion of the company’s profits distributed to shareholders. Stocks offer an opportunity for capital growth and income generation.
ETFs
Exchange-traded funds (ETFs) combine the flexibility of stocks with the diversification benefits of mutual funds. ETFs represent a basket of securities, such as stocks, bonds, or commodities, and trade like a stock on exchange platforms.
By investing in ETFs, you get the opportunity to invest in a broad market index or a specific sector, providing easy portfolio diversification. ETFs are attractive for long-term investors seeking a cost-effective way to build a diversified portfolio.
Cryptocurrency
Cryptocurrencies are digital currencies based on blockchain technology. Unlike traditional forms of investment, cryptocurrencies operate on decentralized networks.
Investors are attracted to cryptocurrencies due to their potential for high returns and the underlying blockchain technology, which ensures transparency and security. But, cryptocurrency prices can be highly volatile.
Fixed-income investments
Fixed-income investments are assets that generate a predictable stream of income for investors. They include government and corporate bonds, certificates of deposit, and certain funds.
Fixed-income investments are considered relatively low-risk as they provide regular interest payments and the return of principal at maturity. Because of this, these investments are often used to balance higher-risk investments like stocks.
Types of investors:
There two main types of investors: active investors and passive investors. Active investors try to outperform the market, while passive investors aim to match the overall market’s performance. You may also come across terms like value, growth, income, index, and momentum investors.
Now that you’ve learned about these asset classes and investor types, you can start building your portfolio. If you’re feeling confident, you can test yourself on what you’ve learned.
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