6 Types of Investments?

How many different types of investments are there?

I remember when I first started in finance trying to figure out all of the ways to invest. It seems the possibilities are endless. Not only in the stock market, but in businesses, in real estate, in commodities, etc. People are very creative at coming up with ways to make money.

To help simplify the way I thought about investing, it occurred to me that there are really only 6 different types of investments in the world:

1. Tax free investments with a variable rate of return.
2. Tax free investments with a fixed rate of return.
3. Tax deferred investments with a variable rate of return.
4. Tax deferred investment with fixed rate of return.
5. Taxable investments with a variable rate of return.
6. Taxable investments with a fixed rate of return.

That’s it. Six total. You can think of any number of investments and they will fit into one of those six categories.

Why is this important?

Because one thing I have learned is that we all start off thinking only about accumulating money through investing but the real way to build wealth is to understand taxes. Once you have proven to yourself that you can save, invest and make money, the next question is how do I keep what I’ve accumulated and avoid paying so much in taxes?

So, after looking at the six different types of investments, where are you investing? Would you change anything?

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