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An overview of securities

In the last chapters I talked about:

  • Stocks
  • Bonds
  • Derivatives
  • Commodities
  • Indices
  • CFDs
  • Mutual funds
  • Hedge funds
  • ETFs

And this is not even in-depth but just the basics of how these financial instruments work and how you can use them to your advantage. You can make money from capital gains (stock or fund shares rising in price), dividends, future price predictions using derivatives, interest (bonds) and some more. 

Some options might fit you better than others, making investing a personal journey. There is no single strategy that fits all needs. But there are some strategies that would be suitable for most people in general. I’ll go in-depth about creating your own portfolio later on. 

I can safely say that most investors are looking at bonds and stocks. Where overall the bond market is much larger than the stock market. But don’t forget most mutual funds, index funds (indices) and ETFs are also based on stocks and bonds. Commodities, CFD’s, options and other derivatives are much more risky for the standard investor. Hedge funds can only be used when having a very high net worth ($1 million excluding your house). From now on I will focus mostly on stocks and bonds. 

An overview of risk versus rewards and time needed to get started:

Type Risk/Reward Time needed to start and maintain
Stocks High/high High to start and to maintain
Bonds Low/low High to start, low to maintain
Derivatives High/high High to start and high to maintain
Mutual funds High/medium High to start, low to maintain
Hedge funds High/high High to start, low to maintain
ETFs Low/medium Low to start, low to maintain
Commodities High/medium High to start, low to maintain
Indices Low/medium Low to start, low to maintain

Keep in mind that many investment types are overlapping. ETFs and Indices are practically the same, mutual funds, hedge funds, ETFs and indices are almost always based on a portfolio of stocks and bonds whereas derivatives mostly consist of commodities. They are only different in the way they approach the market. Each comes with it’s own risk reward ratio. I’ll go more in-depth in a later chapter where we will create some portfolio’s.

Also, stocks can de devided in four types of stocks we talked about before. Not all stocks have high risks and high rewards. But in general, hand picking your own stocks is considerd a high risk. 

Answer the following quests correctly before continuing:

Quest: Mutual fund

What is a mutual fund?

Reward:  +10 XP  0   0   0

Quest: Front end load

What is “front end load” when buying a mutual fund?

Reward:  +10 XP  0   0   0

Quest: Breakpoints

What are breakpoints?

Reward:  +10 XP  0   0   0

Quest: Class shares

What are class shares?

Reward:  +10 XP  0   0   0

Quest: Mutual funds vs ETFs

What is the main difference between mutual funds and ETFs?

Reward:  +10 XP  0   0   0

Quest: Outperforming the market

On average, how many active mutual funds outperform the market after 15 years?

Reward:  +10 XP  0   0   0

Quest: Options

What is true about options?

Reward:  +10 XP  0   0   1

Quest: Commodities and futures

Why are commodities mostly traded as futures?

Reward:  +10 XP  0   0   10


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