At Fullerton Financial, our goal is to help bring clarity to the complicated world of investment planning.
When you dig into investing for your retirement plan, you will come across terms like “vehicle” and “instrument” used in new and potentially baffling ways. If you’re a new investor, the only “investment vehicle” on your radar might be that dream car you’ve always wanted that sits in the garage sooner to be a money pit than an income generator. At Fullerton Financial, our goal is to help bring clarity to the complicated world of investment planning.
Developing a financial plan that helps you realize your goals is integral to making sense of all the options. Having a financial advisor in your corner can give you the peace of mind that you’re building your financial future in the right ways.
What is an Investment Vehicle?
An investment vehicle is a product used by investors for positive returns—it can be almost anything wherein individuals or businesses “invest” by contributing money, expecting money will grow. A car, for example, is not an investment vehicle, because they typically depreciate. Many advisors do not consider a house an investment vehicle because of the costs associated with upkeep.
Investment vehicles will typically be intangible–so if you’re considering low-risk options, a Certificate of Deposit, or CD, is common, as are bonds, high-yield savings accounts, and more. Higher-risk options include crowdfunding, crypto assets, hedge funds, and foreign exchange to name a few.
4 Types of Investment Vehicles
As we’ve illustrated, there are many options when it comes to investment vehicles, but they’re typically broken down into four main types.
1. Individual Stocks
Individual stocks are pieces of an individual company. When you purchase a stock — say Amazon (AMZN), Facebook (FB), or Netflix (NFLX) — you are purchasing a partial stake of ownership of that company. Shareholders are those who own stock in either publicly or privately held companies. While it seems like all major companies are public, there’s a growing list including Bloomberg, Deloitte, and Publix, all of which are privately held.
Companies typically “go public” for many reasons, including to raise money for future growth, to enhance their business reputation, or if a private shareholder wants to sell their stake. Depending on the stocks you own, you may serve on a Board of Directors, receive dividend payments or additional stock options. Not all companies are available for purchase—no matter how much you like Spanx, for instance, you can’t buy your way into ownership. Even if you could become a private shareholder, the company wouldn’t be as beholden to you as a publicly held company might their investors.
2. Mutual Funds
Mutual funds are a very popular type of investment vehicle that makes it easy for people from all levels of investing to have a good mix of financial securities. Mutual funds are essentially a pool of money collected from many investors. Think of it in the same vein as when an office staff may pool together money to invest in lottery tickets. The big difference with mutual funds is you’re far more likely to see a return.
The idea is to take that pool of money and invest in securities. In finance-speak, securities refer to any kind of “negotiable, financial instrument that holds some type of monetary value.” Securities can be stocks, bonds, money market instruments, and more. There are a myriad of options when considering mutual funds, which is another reason they’re so popular.
There are four types of mutual funds: growth funds, value funds, index funds, and blend funds. Having a diversified portfolio doesn’t just mean a diverse mix of stocks, bonds, and other investment vehicles, it also means diversified even within those breakdowns. The type of fund or funds you choose may change over time as your financial situation evolves.
3. ETFs and Index Funds
ETF is short for exchange-traded funds, and is comparable to mutual funds, specifically index funds. They’re popular investments for a few reasons. First, because there’s a low barrier to entry–you can buy and trade ETFs just like you would any other stock with equally low cost. Second, you’re also able to diversify your portfolio pretty swiftly with just a few investments; an ETF based on the S&P 500 “will give you exposure to hundreds of the country’s largest companies.” And third, passively managed funds perform better than active ones over the long term, and can be up to five times less expensive.
4. Bonds
We’ve mentioned bonds several times, and that’s because they’re attractive to new investors because of their relatively low risk. A bond is a broad term for any type of debt investment. The expression “my word is my bond” relates directly back to these age-old types of debt investment. Lending investments, for example, occur when you loan a company money and in return, they certify their intent to repay with a bond. In simplest terms, a bond is an IOU.
Unsurprisingly, there are plenty of caveats to repayment. Depending on its terms, investors typically hold a bond for short, medium, or long terms until it reaches its designated maturity date. Terms are the single-most important concept to understand about bonds because it lays out a variety of scenarios. Most bonds are non-redeemable for instance, which means you can’t try to collect your principal before the bond reaches its maturity date. You may trade them on the secondary market if you’re willing to go that route, but the terms may hold you hostage.
Other Types of Investment Vehicles to Consider
Other popular investment vehicles geared specifically for retirement can include Employer Sponsored Plans, Roth and Traditional IRAs, SEP IRA’s, 401(k)s, life insurance, a health savings account (HSAs), and even cryptocurrency. . Though we mentioned cryptocurrency as being high risk, it is still an investment vehicle many people think is worth betting on. After the market crash of 2008, many financial advisors and investors began looking into alternative investments, or, “investments outside of the traditional markets of stocks, fixed income or cash.” To qualify for these types of investment vehicles, one typically needs to have a high income or net worth. Investments in private equity, venture capital, private debt, hedge funds, real estate, and even commodities top out a short, non-exhaustive list.
It bears constant repeating, but an overall financial plan is a major component of any investment strategy. There are countless stories of inexperienced investors who bet the farm on mutual funds with hidden fees, high sales charges, and no liquidity. An adage often repeated in the finance world is “Past performance is no guarantee of future results.” Heed this advice.
Build Your Retirement With Investments That Matter
At Fullerton Financial Planning, our goal is to help you enjoy your retirement with confidence, not worrying about whether you have enough money to enjoy it. Our certified fiduciaries and experienced investment advisors have decades of combined experience helping people find answers to difficult financial questions. Sit down with a Fullerton Financial Advisor today to discover if you are on the right track for your retirement goals.
We understand how important your financial future is to you and your family; we also understand how difficult making these plans can be. Investment vehicles are essential to any financial plan. When you schedule a call with Fullerton Financial Planning, we’ll help you decide which investment vehicles fit your specific plan and lifestyle.
Don’t leave your financial future to chance. Let us help you create a personalized plan so you can enjoy the retirement you’ve worked so long and hard for.
