There are two basic ways to invest money. You can lend it to pay for a company’s or the government’s debt (“loanership” investment), or you can own the investment yourself (“ownership” investment).
- “Loanership” investment: When you lend your money to a company or the government, you receive income based on a set interest rate for a set period of time. The entity promises to pay back your original principal plus interest. Loanership, or debt investments, include savings accounts, bonds, Ginny Maes, money market accounts and funds, Treasury bills, bonds and notes, and certificates of deposit (CDs).
- “Ownership” investment: When you purchase an ownership investment or equity, you purchase all or part of something. The value of ownership assets will fluctuate with market conditions, potentially giving you a higher return than you might receive from lending your money. Ownership investments include stocks, stock-owning mutual funds, real estate, commodities, collectibles, and precious metals (e.g., gold coins).
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