It may not look like it, but a traditional savings account is one of the most widely used investment vehicles in the world. The term “investment vehicle” describes a financial asset or account used for investment and asset building. An investment vehicle is an instrument, product or container that accompanies a specific investment strategy that enables an investor to achieve a positive return on their income or capital gains.
Investment instruments can include individual securities such as shares and bonds as well as collective investments such as mutual funds and ETFs. Hey, even something like casino rewards can be considered to be investment instruments. It all depends on what you do with them and how often you interact with them. Direct investments are specific asset classes or securities that generate returns. You do not have a professional portfolio management team that selects investments for investors.
Hedge funds operate by pooling money from a limited number of partners or investors. Pooled investment vehicles or large investment funds work by bringing together many small investments into a large number of investors. They are built by collecting small investments by individuals and offer non-wealthy investors (people who want to invest a small amount of capital) the opportunity to participate in investments that would otherwise only be available to sophisticated investors and financial institutions.
Pooled investment vehicles are great for capitalizing on assets that are beyond the reach of most individual investors. Hedge funds are actively managed pool funds that use advanced investment strategies to create returns for investors. A REIT is a REIT owned and managed by income-generating real estate.
On the other hand, many risky investments will never yield returns by default. As an investor you want to balance your return with risk, and it is often unwise to invest in vehicles that yield lower returns than available investments, because higher returns carry the same risk. An investment vehicle’s expected return is a realistic assumption of how much an investor can earn by holding an investment over a medium or long time period.
There are many compelling reasons to make investments part of your overall financial plan. It can help you maintain your wealth, to overcome the effects of inflation, to save for long-term goals like retirement or education of your children and it can generate income. In short, anything you buy or sell at a profit represents a chance for financial gain.
With an endless selection of investment instruments, it can be difficult to take your first steps as an investor without knowing what investments carry the risk of losing your money. Different investments have their advantages and disadvantages, and familiarity can lead to situational advantages that help you manage your investments with confidence. A helpful first step is the realisation that as a young investor you have time on your side.
Making and sticking to an automatic investment plan is one way for you to avoid terrible, emotionally charged decisions – such as selling at the end of a market crash.
