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August 15, 2018

Types of Investments

Financial Freedom (An Ongoing Series)

We spoke last of Mutual Funds, which is the pooling together of stocks and bonds for specific investment objectives that are then offered for sale to the public. Mutual funds provide diversification.

In the spirit of ensuring you know about that in which you plan to invest, here are some other common forms of investment:

Commodities: Investing in commodities at a price today for delivery at some point in the future. It is considered very speculative and risky. For this reason, it is best to leave the commodities market to the professionals. Stay away from sweet sales pitches of systems and "guaranteed" big profits.

Options tying up stock at a certain price in the future: Allows for a great amount of leverage, with attendant risk. But should be avoided by all but the most knowledgeable investors.


Private Placement: Usually less than 35 "non-qualified" investors. It is important that you know the general partner and are satisfied with the track record of previous partnerships.

Public Placement: Larger investment groups with more disclosure requirements. These offerings, as above, require extensive due diligence by you or your financial advisor.

REIT: Real Estate Investment Trust

Functions like a corporation without the disadvantage of double taxation. The most liquid way to own real estate. Shares are usually traded on a stock exchange and you can sell your shares and receive the proceeds within seven days.

Hard Assets

Precious Metals: These act as a hedge against inflation and earn no income while you are invested in them. Storage is a consideration, as you should always take delivery of your precious metal assets.

Rare Coins: You must know your coins or know somebody who does. Never buy from mail-order catalogs regardless of their pitch. This is an investment for someone well on their way to financial freedom, not for the novice. They should be considered long-term investments.

Stamps: Same as rare coins. You must know your stamps or someone who does. As with coins, stamps are a long-term investment. Remember, the stamps earn no income while you hold them.

Collectibles: Only if you are a hobbyist. Baseball cards, Barbie Dolls, electric trains, etc.

Real Estate: Single-family properties and condos are becoming a favored asset class of some, including some broker models, referred to as I Buyers. More on this to come as it evolves.

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