For those looking to supplement their income with alternative revenue streams, investing is one of the best ways to do so. Investing comes in many forms, one such being Ownership Investments. What is an Ownership Investment, and how does it differ from other types of investing?
Ownership investing, is when you are purchasing something to become a partial owner of the asset in the case with shares or owner of an asset. Once the value has reached a specific price point, you will sell that investment and hopefully, earn a profit. It is different from other forms of investing. With Lending Investments or Bonds, you are lending someone money and earning a fixed-rate income in the way of interest as the borrower pays you back.
Compared to other forms of investing, Ownership Investments are considered high-risk, because they are primarily speculative, volatile, and based on the uncertainty of future market trends. Fortunately, high-risk also means the highest potential returns on investment, which is the expected amount of profit you’ll earn based on your initial investment.
So what are some examples of Ownership Investments? Read on to learn the five main types of Ownership Investments, their advantages, and how to get started.
Stocks
When most people talk about investments, the first thing that usually comes to mind is stocks. With possibly the lowest barrier to entry, stocks are a great way to get your toes wet with investing.
Stocks are ways for the public to take partial ownership of a company. Publicly traded companies are listed on one of the major stock exchanges such as the NASDAQ or New York Stock Exchange (NYSE). An investor needs to enroll with one of several stockbrokers to gain access to the stock exchanges.
By owning shares of a company’s stock, investors are entitled to a fraction of the company’s earnings. The better the company performs, the higher the returns to the investor. Large investors are also able to vote on some of a company’s decisions, such as who sits on particular councils.
There are a few ways someone can invest in the stock market. One way is to become a day trader who analyzes the market looking for signs of volatility to buy and sell within. A slightly more drawn-out version of this is known as swing trading, where a trader holds a stock for a few weeks in hopes that it increases in price to some degree before selling. But if you genuinely wish to make a substantial investment within the stock market, it’s best to have a long-term outlook. This means buying stocks in companies that you think will produce the most significant earnings over the years, and possibly even decades. Long-term investments are lower risk relative to day trading and swing trading, and the patience involved can pay off in the long-run.
Advantages:
- Low barrier to entry: stocks vary widely in their initial price, so getting started requires a small amount of capital. Other stock choices such as Exchange-Traded Funds (ETFs) or Mutual Funds can further reduce the initial costs to invest.
- Flexible: there are several methods for buying and selling stocks, such as day trading, swing trading, and long-term investments. You can get in and out of the market at any time.
- Potential for high returns: the more stocks you buy, the higher the return on investment. More expensive stocks tend to fluctuate by larger margins.
Precious Metals (Commodities)
A similar to investing in the stock market is investing in commodities. Commodities are essential goods that are typically used in the manufacturing of products such as iPhones or cars. Arguably the best commodities to invest in are precious metals. Gold, silver, and platinum are all precious metals.
Why invest in precious metals? Not only are metals finite resources, but the more dazzling metals like gold and silver are intrinsically valuable due to their unique properties that are both beautiful and useful in manufacturing. They never lose their luster through rusting, and they are great conductors for electronic components. That is only a few reasons why metals are good investment assets. You can read more on gold and silver in one of the earlier articles.
Investing in precious metals can be done in several ways. Purchasing stocks in companies involved with the extraction of precious metals can be done on the stock market. Additionally, Commodity Exchange Trade Funds (ETFs) are ways to invest in multiple metal mining companies at once and is an excellent way to capture a specific market as a whole. Neither of these methods, however, gives you ownership of the actual, physical precious metal.
It’s possible to purchase precious metals in physical form, and these are known as bullions. If you’re thinking of investing in precious metals, physical bullion is a way to go. Owning bullion is the best way to ensure your purchase, and it will be easier to deal with when you decide to sell it. Theoretically, you can buy paper certificates that represent the physical asset amount you own. However, there’s a chance that gold buyers will not accept that certificate in a time of national or global crisis. You will be more secure if you have your gold and silver investment on hand.
Advantages:
- Consistent store of value: due to its finite nature, physical properties, and cosmetic appeal, there will always be a market for precious metals.
- Great backup plan: throughout history, people have always turned to gold when their nation’s currency collapses.
- Liquidity: precious metals are very easy to sell, and even more so if you own them in physical form.
Real-Estate
Investing in real-estate has always been seen as a smart and lucrative endeavor. Real-estate is essentially the purchase of space. It includes land, homes, and buildings. Many first-time real-estate investors will start with buying a home; most likely for personal use. These same homeowners often find that when they are ready to move to a new home, they can sell their current one for more than the price that they bought it for. Living space is a finite resource, and everyone needs somewhere to live, especially as the global population continues to grow.
Due to gradual changes to the cost of living all over the world, homes tend to appreciate over time. Likewise, location is one of the most significant determining factors in the price of a home. Properties that are located in convenient areas, like near schools or downtown, tend to be more expensive. As cities develop, more people tend to flock to these places, so by buying a home in popular locations; you have a good chance of selling it for higher at a later date.
After learning the ins-and-outs of buying a home, some homeowners may turn to craftier ways to invest in real estate. A popular form of real estate investment is buying a fixer-upper, remodeling it, and then flipping it for many times its original value. Also, looking for homes in what may be deemed an up-and-coming area is an excellent form of investment. Some neighborhoods experience shifts in value as new civil developments attract residents.
Aside from residential real estate, investors also like to purchase land, office space, and industrial buildings. By purchasing office space, you can rent out to new companies looking for a place to run their business. The land is great too because there is enormous potential depending on who wants to buy it and for what.
What makes real estate investment so appealing? Much of it is leverage. When purchasing real estate, you don’t need to pay for the entire cost of the asset to own it. Most of the time, you need to put a deposit down equal to 20 percent of the full price; sometimes, the deposit can be even lower. Leverage dramatically reduces the barrier to entry, allowing you to earn far more than your initial investment.
Lucrative returns on investments are not guaranteed with real-estate though. A stark reminder is the housing bubble burst that caused the 2008 economic recession, caused by mortgage lenders pumping money into the market. Furthermore, your decision over remodeling a home or purchasing in an up-and-coming area might be a poor one. Losses in real-estate can range anywhere from thousands to hundreds of thousands.
Advantages:
- Relatively low barrier to entry compared to potential returns thanks to leverage.
- It is a great source of passive income. Once you’ve purchased real estate property, you have the choice of renting it, which could become a long-term source of additional income.
- Helps the local community: investing in a home, fixing it up, and reselling it helps the community you are buying in. It offers others a nice place to live after you’ve invested in it.
Collectibles
Collecting certain products can be a form of investment. While extremely speculative and risky, it is possible to make tons of money by selling rare or in-demand products at a later date. In some cases, people made money from collectibles by accident.
Popular examples of collectible items are rare and old coins, comic books, meteorites, art, and cars. The list can go on and on. With collectibles, it’s tough to know what will grow in value unless you have in-depth knowledge in a specific area. For that reason, they are a reasonably high-risk investment.
Still, it is not an investment to overlook entirely. Someone highly observant in popular culture could probably find an item to sell far into the future. Typically, valuable collectibles follow a trend known as the “Twenty Year Rule.” It proposes that a collectible item reaches its peak value after two decades; right around the time, people start developing nostalgia for it.
Advantages:
- A diverse range of products to invest in: there will never be an end to a variety of books, art pieces, cars, or coins on the collectible market.
- Easily liquidated at peak value: once a collectible is in demand, you are sure to find a buyer. With tools on the Internet, it is easier than ever to find interested buyers.
- A potentially small barrier to entry: there are plenty of stories of people finding rare items for cheap at a garage sale before reselling it in the future for many times the original price.
Business
Starting an own business has been the staple of the American Dream for centuries. The reason why is because it offers one of the highest returns on investment. To become a business owner, in a way, is to take control of your future.
In the age of the Internet, it seems like a new startup is forming each day. Increased connectivity and sophisticated software platforms are opening up the door for just about anyone to start a business.
To invest in a business means that you are pouring your own time and money into its creation. You will need to continually invest money into your business overtime to cover the costs of operation, including maintenance, payroll, and resupply. With enough hard work, your business might start earning profits, which becomes your return on investment.
Running a business is not easy and has a high failure probability. Even the most promising ideas may crumble in the face of hardship or competition. In most circumstances, starting a business requires the biggest learning curve and the most initial investment.
Advantages:
- Control over the development of business: unlike stocks, you control how your company produces its value.
- It can become a long-term passive source of income: once a business takes off, it can become highly autonomous, requiring less and less work from you.
- Unlimited revenue: The wealthiest people on earth are not employees, but business owners. There is no value limit for a great idea that solves many problems.
When considering Ownership Investments, diversity is critical. The great thing about Ownership Investments is that you can dabble in any of the mentioned above, and the risks associated with each can balance each other out. Also, having a solid plan before endeavoring to invest is a must. All successful investors know their entry-level and the price at which they are willing to sell it. Only that will help to deal with emotions.
If you have experience investing, let us know what worked or works for you. How do you make your investment decisions?