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Long term investment: Investing in bonds, stocks and mutual funds

Different investment opportunities are available to investors. The choice of investment opportunity you take will depend on different factors top among them your reason for wanting to invest, your age, the amount you want invested and the type of securities you want. If you have funds that will not be needed for near-term purchases and pay expenses, then your funds can be invested in long term investment securities.

Long term investment securities

Any good investment will accrue value over time. However, in order to ensure your investment accrues value over a given period, you will need to identify the right securities to put your money. Three of the best long term investment securities available to investors are bonds, stocks and mutual funds.

Bonds

Simply, bonds are funds lent out to governments, business and other entities. The amount lent out in bonds is paid back over a given period of time augmented by interest. The bond interest rate varies, depending on the probability that the amount lent out will be successfully repaid. Risky loan have a higher probability of the borrower defaulting on the loan and tend to come with higher interest rates.

The bond repayment duration or bond term also varies similar to the interest rate on the bond. Some bonds return accumulated principal and interest at the end of the bond term while others return interest and the principal at intervals throughout the life of the bond term. If you decide to invest in bonds, you need to be aware that the value of any given bond will change with prevailing interest rates and financial situation of the borrower.

Stocks

Investing in stock shares gives you a fraction of the ownership of the publicly traded company whose share you have. In other words, you become co-owner of the company in which you have shares and invested in. The success of your investment in that company will at least be tied to the success of that company. It is, therefore, important that you choose the company to invest in conscientiously.

If the company’s stocks increase, your shares in the company increase in value, meaning you can sell them for more than you bought them. Some companies also pay stockholders dividend (a portion of the company’s profits) proportionally, depending on the amount of stock units held. Dividend can be in the form of cash or in the form of additional stock shares.

Mutual funds

Mutual funds are a type of long term investment scheme where money and or other securities including stocks and bonds is pooled from many investors and used to purchase investments on behalf of the investors. This investment opportunity presents significant benefits, particularly to smaller investors who enjoy access to a broader spectrum of investment opportunities and protection against isolated volatilities. The price for access to this diversification is often high fees charged for participation.

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