Real Estate

Investment Products Overview: What’s Out There?

For those just starting the long journey of investing and financial planning, the obvious question is: What products are out there? Here is a brief introduction.

Cash and Money Market Funds

  • Cash or CDs (certificate of deposit) earn returns in terms of interest income. Comprised of high-quality, short-maturity debt instruments, money market funds offer similar returns to CDs, but can be traded once a day. While they are the safest instruments, the yield may not be high enough to offset inflation.

Actions / Shares

  • Owning a stock means owning a part of a company. As an owner, you gain the most benefit in good times, but take the greatest risk in bad times. Statistically, this “high risk, high return” investment provides the best investment return over the long term.

Bonds / Fixed Income Products

  • A bond is a loan made to the issuer of the bonds (for example, the government or corporations) by an investor (for example, an individual). In return, the investor receives a regular payment of interest (the rate is called the yield) until the bond matures, at which time the issuer repays the principal.
  • At the same time, the bonds can be traded on the market. Like stocks, bond prices go up and down depending on many factors, and this fluctuation affects effective yield.
  • Therefore, although bonds provide a regular, fixed interest income, they are by no means a risk-free financial instrument.

FOREX (foreign currency exchange)

  • Economies around the world use different types of currencies, which creates the need to trade and exchange currencies.
  • When we buy stocks or bonds from a foreign country, we are inherently buying FOREX. For example, you live in the US and own shares in a French company. If the euro is strengthening against the US dollar, even if stocks remain unchanged, you’re better off with a foreign exchange gain.

ETFs (exchange traded funds)

  • ETF is a basket of securities that tracks the performance of an index of stocks, bonds, or commodities.
  • It can be easily bought and sold on the market (just like stocks), gives you diversity (exposure to different industry/regional indices), and generally incurs lower costs than mutual funds.

Investment funds

  • A mutual fund is a portfolio of stocks or bonds created for a particular industry, country, or product. It can be traded once a day based on the price (called NAV, net asset value) calculated at the end of the day.
  • Unlike ETFs, mutual funds are actively managed by fund managers and their performance can vary widely.

Real Estate / REIT

  • The investment can be in the form of: (1) owning physical property, (2) owning shares of publicly traded real estate companies, or (3) owning shares in REITs.
  • Real estate is an interesting and complicated type of investment and has many unique properties; But in general, we can expect your investment returns to fall between stocks and bonds over the long term.

raw Materials

  • Commodity products were once open only to private wealth clients.
  • As energy and commodities enter a major bullish cycle, the products have become very popular and related funds/ETFs are entering the mass market.

In addition to the investment products above, sophisticated investors may include structured products, hedge funds, private equity investments, and collectibles (eg, antiques, fine art, special editions) in their portfolios. The range and diversity of investment products could be endless!

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