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An investment vehicle refers to anything that a person can invest his money in. There are numerous types of investment vehicles for those looking to invest their money. The premise behind selecting an investment vehicle is to identify an investment that will allow money to grow while minimizing the risk of losing the funds invested.
Stocks and bonds are the two most commonly recognized investment vehicles. Stocks refer to an ownership stake in a public company. The company makes shares — which equate to an interest in the company — available on a publicly traded market such as the New York Stock Exchange (NYSE). Investors can then purchase shares of the stock for the market price. The market price is determined by a number of factors, including the assets the company possesses, the company's projections about its future business, and the market's perceived perception of the company's worth.
Bonds, on the other hand, refer to the purchase of debt. Treasury bonds issued by the government, for example, are essentially loans to the government or a purchase of the government's national debt. The interest rate, or return on investment, of a bond is equal to the interest the government pays to those who carry its debt. Municipal bonds are another type of bond, which refer to buying debt from a local government, while corporate bonds involve the purchase of corporate debt.
Certificates of deposit are also an investment vehicle, as are money market accounts. These tend to be the lowest risk type of investments but have the lowest expected rate of return. Real estate may also be another type of investment vehicle, as can any other purchase designed to grow funds.
When a person selects which investment vehicle to put his money in, he considers the expected return. This is the amount of money his investment will generate. He also considers the risk, or the chance that his investment will decline in value. The more risky an investment is, the higher the rate of return it must have for it to be a wise buy for investors.
Many investors invest in multiple investment vehicles to maximize their returns and minimize their risk. The group of investments a person has is referred to as his investment portfolio. Investors try to achieve a balanced portfolio, which means they have a mix of risky investments with higher rates of return and safer investments with lower rates of return.
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