Investment Examples

In a financial market, there are many different ways for an investor to invest and achieve growth. As a result, various types of investments may act as tools to help achieve an investor's financial goals. The most common examples of investment types are as follows:

• Stocks
• Bonds / Certificates of Deposit (CDs)
• Cryptocurrencies
• Real Estate
• Options
• Commodities
• Futures
• Investment funds
• Bank Products
• Annuities, etc.

Let us understand the top 6 types of investment with the help of detailed examples.

#1 - Stock

Companies sell stock and, in return, obtain cash. Selling stock means selling ownership of the company to that extent. Depending on the rights conferred to the investors purchasing stocks, stocks are reclassified as common and preferred.

Investors should diversify their portfolios by investing in various stocks based on their risk appetite. They shall approach financial advisors if they cannot make a proper investment decision.

Investment Example

Let us take the example of the stocks of Amazon.com Inc. Amazon.com is an e-commerce company headquartered in Seattle, Washington. Let us consider the stock-related data of Amazon on three separate days:

Source:  NASDAQ

• Let us say (hypothetically) Mr. X purchased 100 shares of Amazon on the 14th of June 2019 at $1859. So, Mr. X had to spend 100 x 1859, i.e., $185,900. As the price went up on the 1st of July 2019, he decided to sell them at the end of the day at the closing price of $ 1922.19 and received 100 x 1922.19, i.e., $192219.
• Gain in the above transaction = $192219- $185900 = $6319.
• Let us say (hypothetically) Mr. X purchased 100 shares of Amazon on the 7th of May 2019 at $1939.99. So Mr. X had to spend 100 x 1939.99, i.e., $193,999. As the price went up on the 1st of July 2019, he decided to sell them at the highest price of $ 1929.82 and received 100 x 1929.82, i.e., $192982.
  Loss in the above transaction = $192982- $193999 = $1017.

#2 - Bonds

Bonds are fixed-income instruments that a company issues in return for cash, and such an issuer of bonds owes the holders of bonds a debt. The issuer has to pay interest and/or repay the principal amount on a later agreed-upon date (maturity).

Example #1

Let us take the example of Bonds issued by HSBC. HSBC is a British multinational banking and financial services company.

Assume Mr. A purchases a 5-year £1 million HSBC bond with a 5% coupon rate. It means HSBC has to pay Mr. A interest of £5000 every year until five years, and at the end of 5 years, the £1 million has to be repaid.

Example #2

Consider a three-year bond with a face value of $3000 and a coupon rate of 5% yearly. If the investor holds it till maturity:

• We will get back the initial value of $3000.
• Will get 5% interest, i.e., $150 a year.
• That means the return will be about $150 x 10 = $1500 (ignoring the time value of money)

Example #3

Sometimes, an investor has to sell his bond for an amount more/ less than what he has purchased it for. It may be because of interest rates, inflation, or credit ratings.

E.g., when an existing bond is offering an interest rate of 4% when the market interest rate goes down to 2%, the bond may be sold for a price higher because it becomes attractive to the other investors to gain a higher interest when compared to the market.

Similarly, when the market rate goes up to 6%, the investor may have to sell it at a lower rate.

#3 - Options

An options contract is an arrangement between two parties where one party agrees to buy/sell a particular asset at a later agreed-upon date. That means this agreement gives the buyer of "option" a right to buy/sell.

Example

Let us understand this type of investment with the help of an example-

Investor B expects a company's stock price to go up to $100 in the next two months. He sees that he can buy an options contract for the company at $5 with a strike price of $80 per share. The investor decides to buy 100 shares of the company. So he has to pay $5x 100 = $500.

As expected, the stock price rises to $100, and now B exercises the call option.

He pays $80 x 100= $8,000 for the stock.

The investor can sell such shares at $100 x 100= $10,000 there, realizing a gain of $1,500 ($10,000 – $500 – $8,000).

#4 - Real Estate

Real estate means property, land, buildings, etc. The major benefit of investing in real estate would be that there would be wealth generation using appreciation in the value of the real estate assets. There are majorly four types of real estate:

1. Residential Real Estate
   Example- houses, condominiums, vacation homes, etc.
2. Commercial Real Estate
   Example- shopping malls, school buildings, offices, hotels, etc.
3. Industrial Real Estate
   Example- factories, manufacturing units, buildings used for research, production, storage, etc.
4. Land.

#5 - Cryptocurrencies

Cryptocurrency is a digital currency with strong cryptography to secure financial transactions and is used to verify and regulate the transfer of funds, generation of currency units, etc.

Examples of Cryptocurrencies investments are Bitcoin, Litecoin, Ripple, Ethereum, Bitcoin Cash, Ethereum Classic, etc.

#6 - Commodities

Commodities' investment examples include precious metal bullion like gold, silver, and platinum. Energy resources like crude oil and gas; or natural resources like agricultural, wood, timber products, etc.

Many types of investments are available in the market, like the ones stated above. Choosing the right type of investment is very important depending upon the quantum of investment, the investment expectation, and the investor's risk appetite. Investors must take professional help, avoid investments outside the understanding and diversify their portfolio to reduce the risk to the lowest.

This article is a guide to Investment Examples. Here, we discuss the top 6 types of investment along with examples and detailed explanations. You can earn more about investments from the following articles: -

• Takaful
• Top Examples of Call Option
• Green Investments
• Cash Investment
• ROI