What is an 'Investment Vehicle'
An investment vehicle is a product used by investors with the intention of gaining positive returns. Investment vehicles can be low risk, such as certificates of deposit (CDs) or bonds, or carry a greater degree of risk such as with stocks, options and futures. Other types of investment vehicles include annuities; collectibles, such as art or coins; mutual funds; and exchange-traded funds (ETFs).
BREAKING DOWN 'Investment Vehicle'The term "investment vehicle" refers to any method by which individuals or businesses can invest and, ideally, grow their money. There is a wide variety of investment vehicles, and many investors choose to hold at least several types in their portfolios. This can allow for diversification while minimizing risk.
The different types of investment vehicles are subject to regulation in the jurisdiction in which they are provided. Each type has its own risks and rewards. Deciding which vehicles fit particular portfolios depends on the investor's knowledge of the market, skills in financial investing, financial goals and current financial standing.
Investors who delve into ownership investments own particular assets they expect to grow in value. Ownership investments include stocks, real estate, precious objects and businesses.
Stocks, also called equity or shares, give investors a stake in a company and its profits and gains.
Real estate owned by investors can be rented or sold to provide higher net profits for the owner.
Precious objects such as collectibles, art and precious metals are considered ownership investments if they are sold for a profit.
Capital used to build businesses that provide products and services for profit is another type of ownership investment.
With lending investments, people allow their money to be used by another person or entity with the expectation it will be repaid with profits. This type of investment is generally low risk and provides low rewards. Examples of lending investments include bonds, certificates of deposit and Treasury Inflation-Protected Securities (TIPS).
Investors investing in bonds allow their money to be used by corporations or the government with the expectation it will be paid back with profit after a set period of time with a fixed interest rate.
Certificates of deposit (CDs) are offered by banks. A CD is a promissory note provided by banks that locks the investor's money in a savings account for a set period of time for a higher interest rate.
Treasury Inflation-Protected Securities (TIPS) are bonds provided by the U.S. Treasury crafted to protect investors against inflation. Investors who put their money in TIPS get their principal and interest back when their investment matures over time. Both principal and interest are indexed for inflation.
Cash equivalents are financial investments that are generally as good as cash. These are savings accounts or money market funds. The investments are liquid but have very low returns.