When deciding what to invest in, you should consider your risk tolerance and financial goals. Once you have evaluated these elements, you can choose from an array of assets, including stocks, cryptocurrency and exchange-traded funds.
Investing is a great way to grow your money and build wealth over time. If you’re new to investing, you may be overwhelmed by the sheer amount of choices available. With so many different investment opportunities out there, it can be tough to decide what to invest in.
Why invest?
People invest for many different reasons, but the most popular are to build passive income, to increase long-term financial security by growing your wealth over time, and to learn a new skill.
Investing allows you to put your money to work for you, generating passive income and potentially increasing your net worth. It can also be a fun and challenging pursuit, requiring research, analysis and a bit of risk-taking.
Investing can mean many different things, including putting your money in stocks, bonds, mutual funds, crypto and real estate.
What you invest in depends largely on your personal financial situation, including your age, income and risk tolerance. It also depends on your financial goals and what you want your money to accomplish.
Whether you are just starting out or are a seasoned investor, investing is essential to securing your future.
What you could invest in right now
You can invest in different types of asset classes at any time during the economic cycle. For example, in a period of economic expansion, you may invest in prosperous stocks, bonds, ETFs, currencies or cryptos. Here’s a closer look at the various asset classes you can invest in.
Stocks
Stocks are shares of ownership in a public company. Each share has a value, based on the company’s total worth divided by the total available number of shares.
A company’s stock price varies throughout the day and is influenced by broader economic factors in the market and other variables, such as company reports or political events.
By investing in stocks, you’re effectively owning a part of the company. If the company grows and generates profits, the value of your investment may increase. If the company performs poorly or doesn’t meet expectations, the value of your stocks may drop.
Owning stock also comes with additional benefits such as voting rights, meaning that you can make your voice heard by the companies you care about. You may also be entitled to dividends — additional payments to stockholders that tend to happen at the end of each quarter.
It’s important to understand that individual stocks can be volatile and unpredictable, and there’s always a risk of losing money. That’s why it’s crucial to do your research, stay informed about the company’s financial health and industry trends, and diversify your portfolio to help manage risk.
Tip: Stocks are available on eToro. You can find your favorite companies by searching their names or tickers on the Discovery page.
Bonds
Bonds work by allowing companies and governments to borrow money from investors and pay them back at a later date with interest.
Think of it like loaning your friend some cash to pay for their new apartment: You’re the lender, the friend is the borrower, and the interest rate is the amount your friend will pay you back for the favor.
As a bondholder, you essentially become a lender, and the interest payments you receive can generate a steady stream of income.
However, not all bonds are created equal. When investing in bonds, it’s important to consider factors such as credit rating, maturity date, and interest rate, which can all impact your return on investment.
ETFs
Exchange-traded funds, or ETFs, are a basket of investments — including stocks, bonds, currencies and crypto — designed to track a specific segment or sector of the financial market.
Unlike mutual funds, which are priced at the end of each trading day, ETFs are traded throughout the day like stocks. What’s more, ETFs offer investors a diversified portfolio with lower fees, tax efficiency and greater flexibility.
ETFs also offer exposure to entire markets, such as broad-based indexes or sectors, allowing for a more targeted investment approach.
Tip: Because they target different sectors or segments, you can invest thematically with ETFs — for example, you could invest in one that includes only green energy stocks.
Like any investment, ETFs can carry risk, so it’s important to understand how ETFs work and make informed decisions about your investments.
Cryptocurrency
Crypto is a form of digital currency that operates on a decentralized system, meaning that it is not controlled by any one government or financial institution. Instead, it’s managed by a network of computers using complex algorithms to verify and secure transactions.
The most well-known crypto is Bitcoin, but there are now thousands of different types available for trade on various exchanges.
While the technology behind cryptocurrency may seem complex, its benefits are clear — faster and more secure transactions, reduced transaction fees and greater transparency.
Investing in crypto involves buying digital coins, which are then stored in a digital wallet. Significant cryptos such as Bitcoin and Ethereum trade on various exchanges worldwide, with prices fluctuating significantly depending on market demand.
There are various factors to consider when investing in crypto, including market volatility, security concerns and regulatory changes.
It’s important to understand these risks and how crypto works before taking the next step.
Tip: Cryptos are available on eToro. You can find your favorite coins by searching their names or tickers on the Discovery page.
Currencies
Currency investing, also known as foreign exchange, refers to the buying and selling of different currencies in the hope of making a profit from their fluctuating exchange rates.
Currency trading relies heavily on macroeconomic events and policies. The value of a currency may be affected by the policy of its central bank, elections, trade agreements, natural disasters and other global events.
Successful currency investing requires not only a deep understanding of currency markets, but also an awareness of global economic and political developments that could impact those markets.
Commodities
Commodities are basic goods or raw materials that are commonly used in commerce, including wheat, crude oil, gold and livestock.
The commodities market is highly dependent on supply and demand, as well as external factors such as geopolitical events and climate conditions.
Investing in commodities can offer diversification to a portfolio and protect against inflation, as investors typically either try to invest in commodities based on swings in the market or as a long-term bet.
For example, if you believe in the future growth of the electric vehicle market, you may invest in the commodity used to produce EV batteries.
You may choose to invest in futures contracts, exchange-traded funds or physical commodities themselves, depending on your investment goals and risk appetite.
Tip: Commodities aren’t available on eToro US, but you can find some commodities-focused ETFs.
Index funds
Index funds are a type of mutual fund that is designed to track a specific market index, such as the S&P 500 or the Nasdaq. They are a popular choice among investors due to their low cost and passive management style.
As opposed to actively managed funds, which try to outperform the market, index funds aim to match the market’s performance.
This passive approach to investing is an effective way to capture broad market gains without having to actively manage a portfolio. You get exposure to a wide range of companies without having to do the research or make the decisions yourself.
Fixed-income investment
Fixed-income investments offer a predetermined return on a fixed schedule, typically in the form of regular interest payments.
Fixed-income investments include government and corporate bonds, as well as certificates of deposit (CDs) and other similar financial instruments.
They are valued for their stability and low risk potential, making them an ideal choice for those looking to preserve capital and generate reliable income streams over time. These investments are also commonly used to help diversify portfolios.
Investing in fixed-income investments can be a smart choice for investors seeking a steady stream of income or a lower-risk alternative to the volatility of the stock market.
What to consider when picking investments
Regardless of what you decide to invest in, remember the importance of diversification. By allocating your assets across different types of investments, you spread your risk and reduce the impact of market volatility.
Diversification means that if one investment doesn’t perform well or if there is a market downturn, the other assets in your portfolio can help balance out any losses.
Final thoughts
Your portfolio should include a mix of equities, bonds, cash and other assets that align with your financial goals and risk tolerance. By investing in an array of assets, you diversify your portfolio, a strategy that aims to spread and grow your wealth across different assets in different sectors.
Learn more about different investments and diversifying your portfolio on the eToro Academy.
Quiz
FAQs
- How do I diversify my portfolio?
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Portfolio diversification involves more than just buying a greater number of smaller positions. If all of the assets you own have similar characteristics, any price moves will most likely be reflected across your portfolio.
Diversifying your portfolio involves investing in a range of assets that you believe will ultimately increase in value, but that may take different routes to achieving their individual targets.
- How long do I have to hold a position in different asset classes?
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Different asset classes have different characteristics. If you are looking to invest for short-term gains, then instruments with lower volatility may be a better fit, as there is less chance of their value moving much lower or higher than you would like it to.
- Am I ready to start investing?
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Successful investing requires an understanding of your aims, the assets and markets you are investing in, as well as the key terms associated with investing. Investors should have a clear plan on how to achieve these goals. If you have satisfied those core principles, you should be ready to start investing.
This information is for educational purposes only and should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to, buy or sell any financial instruments.
This material has been prepared without regard to any particular investment objectives or financial situation and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Not all of the financial instruments and services referred to are offered by eToro and any references to past performance of a financial instrument, index, or a packaged investment product are not, and should not be taken as, a reliable indicator of future results.
eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this guide. Make sure you understand the risks involved in trading before committing any capital. Never risk more than you are prepared to lose.