Is a pick-up a better vehicle than a Lamborghini? Well, it depends on the situation…if you are stuck in the mud, the four wheel drive F-150 will be the best choice. If you are heading to reach maximum speed maybe you should try with a F1 car, if you want security you could buy a Volvo, if you don’t know how to drive you should definitely travel by bus and…and…..OK, OK, enough examples!

What I mean is that an investment vehicle is like any other vehicle, it is a tool that helps to reach a predifined goal at a specified time. So the important things to consider in any endeavor are: having a goal and having knowledge of how to use the resources available to reach that goal.

The great investor Warren Buffett often says “I invest in businesses that I understand”.

The following are the six basic types of investments. I strongly recommend you to learn everything you can about these financial instruments, for it is certain that any investing activity you’ll undertake will be involved with one or more of these types of investing vehicles, directly or indirectly.

1 - MONEY MARKET (very conservative):

• Very liquid markets (short-term debt).
• Little or no risk (unless you lived in Argentina in 2001!). Very low reward, usually lower than inflation.
• Individual investors can access these fixed-income securities through mutual funds (see below) or Certificates of Deposit (”plazo fijo”).
• When I don’t know what to do with my money or while deciding where to invest it, I usually put the money in a money market. Your money should be always working for you!
• Level of difficulty: very easy.
• How do you invest in Money Markets? Contact any bank or investment firm.

2 - BONDS (conservative to aggressive):

• Bonds are a type of debt that is commercialized to the public through the open market and trades as a security. You are the creditor, and as such, you receive an interest on the money you invest.
• Low volatility -> Low risk/return.
• Current market price: sensitive to the macro situation of the country/region. If you plan to invest in a bond until maturity the price fluctuations don’t matter.
• Principal: the capital initially invested.
• Coupons: regular cash payments. It is the interest returned on the capital borrowed.
• Maturity: the time when the bond has completely repaid the principal plus the interest (coupons) and ceases to exist. *Duration: it is a measure of the interest-rate risk/reward for bond prices, expressed in years. Useful to objectively compare different bonds. Short-term bonds have maturities of less than 2 years. Long-term bonds have maturities longer than 10 years.
• Types of bonds depending on the issuer: Government bonds, municipal bonds, corporate bonds.
• Types of bonds depending on the return: fixed return, inflation adjusted bonds, investment grade (low risk/return), junk bonds (higher yields and higher risk).
• Yield: it is the annual rate of return for any investment, expressed as a percentage. Used to measure the performance of bonds.
• Treasuries: US Government Treasury bills are officially the safest investments in the world, and the 10 year T-note’s yield is a regarded as the risk-free rate.
• Bonds are anti-cyclical: the price(yield) of bonds rises(falls) on recessions. The price(yield) falls(rises) on inflationary periods (because inflation eats out bonds nominal returns).
• Wenn Sie mit anderen Spielern an einem offentlichen oder reservierten Tisch everest poker m?chten, w?hlen Sie Multiplayer aus. Not suitable for trading: trading in bonds require large amounts of capital. Used individually as a conservative investment.
• The king of bonds: Bill Gross from PIMCO is the money manager of the largest bond fund.
• компютри втора употреба Bonds ETFs symbols to trade bonds like stocks (for more info on ETFs see below): AAG,SHY,TLT,TIP.
• Level of difficulty: a bit difficult. Requires some knowledge of economics.
• How do you invest in Bonds? You have to open an account in an investment bank or a broker.

For more info on bonds visit http://www.pimco.com/LeftNav/Bond+Basics/2006/Everything+You+Need+to+Know+About+Bonds.htm

3 - STOCKS (moderate to very aggressive):

• Companies can raise money by offering stocks to the market. You own a part of the company, so as a partner you are in for the upside…and for the downside.
• Buying stocks for capital appreciation: the price of a stock is basically derived from the expectations of future earnings of the company.
• Buying stocks for dividends: a way to obtain cashflow from your investment in stocks. Some companies pay dividends, these are often called “value” stocks. “Growth” stocks usually don’t pay dividends, they reinvest earnings.
• Level of difficulty: difficult. You should know about the economy and how the stock market works, also you should know a bit about the industry and finally you should understand how to read ratios and financial statements: income statement, balance sheet, cashflow statement. Of course….can you start investing in stocks without knowing some or all of these things? Yes! But start with little money because at first you won’t know what’s going on.
• How do you invest in Stocks? You have to open an account in a stock broker.

4 - REAL ESTATE - PROPERTY (conservative):

• First of all: I’m NOT talking about your house (the one in which you live). Your house shouldn’t be treated as an investment, and neither your car. What I’m talking about here is using properties as investment vehicles.
• You can buy property for one or two objectives: capital appreciation and/or cashflow (renting).
• Leverage: if you can’t (or you don’t want to) buy the property with cash, you can always apply for a mortgage. This is very important because this is the only investing asset in which you can borrow money relatively easy and with a reasonable interest rate. Using leverage by borrowing money increases dramatically the rate of returns (or losses) of any investment.
• The real estate market is very inefficient compared with the stock market, but there are more opportunities to negotiate and obtain an interesting entry price.

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• High costs of transaction, very illiquid assets (these are long term investments).
• Level of difficulty: very difficult. These are no small deals, and you should be well educated before starting to invest in properties.
• How do you invest in Property? You should contact a Real Estate agent or broker specialised in properties as investments.

5 - BUSINESSES AND START-UPS - Private Equity funds, Venture Capital (very aggressive):

• For professional investors, usually large investment firms/banks.
• Investing clubs: a group of individual investors raising a pool to invest in start-ups.
• Level of difficulty: very difficult. You need to know perfectly the things I described before in stock investing, and moreover you should be experienced in management.
• How do you invest in Companies? There are investing clubs specialised in venture capital. Another way of investing in businesses is franchising.

6 - COMMODITIES - Precious Metals, Basic Agriculture Products, Basic Mining Products (very aggressive):

• More suitable for trading than investing.
• Trading via Futures (see below) and now also through ETFs: GLD,SLV,USO,UCR…
• Level of difficulty: difficult. Commodities prices are very volatile, you need to know about the actual commodity you trade: how it is obtained and distributed, seasonal patterns, global markets, etc.
• How do you invest in Commodities? You have to open an account in a stock broker and ask to trade futures.

When you have learned the characteristics of a financial vehicle you are better prepared for:

1. evaluating current conditions to see whether this is the proper time to use this asset
2. knowing how to use it and
3. assessing what are the risks and rewards associated, and how to handle them to maximize the probabilities of success.

In a next post I’ll cover the most common indirect investing vehicles like mutual funds and retirement funds. All of them are based on the basic tools described here.