3 Types of Investments Compared: Gold, Stocks, & Real Estate (2024)

FAQs

What are the 3 main investment categories? ›

Historically, the three main asset classes are considered to be equities (stocks), debt (bonds), and money market instruments. Today, many investors may consider real estate, commodities, futures, derivatives, or even cryptocurrencies to be separate asset classes.

The major investment styles can be broken down into three dimensions: active vs. passive management, growth vs. value investing, and small cap vs. large cap companies.

Real estate investments can occur in four basic forms: private equity (direct ownership), publicly traded equity (indirect ownership claim), private debt (direct mortgage lending), and publicly traded debt (securitized mortgages). Many motivations exist for investing in real estate income property.

Bonds, stocks, mutual funds and exchange-traded funds, or ETFs, are four basic types of investment options.

The Bottom Line

Investments can generally be broken down into three categories: ownership, lending, and cash equivalents.

The passive index fund industry is dominated by BlackRock, Vanguard, and State Street, which we call the “Big Three.” We comprehensively map the ownership of the Big Three in the United States and find that together they constitute the largest shareholder in 88 percent of the S&P 500 firms.

Perhaps the most common are stocks, bonds, and ETFs/mutual funds. Other types of investments to consider are real estate, CDs, annuities, cryptocurrencies, commodities, collectibles, and precious metals.

Capital budgeting is the process by which investors determine the value of a potential investment project. The three most common approaches to project selection are payback period (PB), internal rate of return (IRR), and net present value (NPV).

Hedge funds, private equity and private credit are three key asset classes in the alternatives universe. They provide portfolio diversification, help tap potential for growth and enable financing opportunities for investors and businesses.

Stock Market vs.

In terms of averages, stocks have tended to have higher total returns over time. The S&P 500 stock index has had an average annualized return of around 10% over very long periods (higher if you include dividends), while average annual real estate returns are often more in the 4-8% range.

What type of real estate investment makes the most money? ›

These pillars work together as puzzle pieces, to create one big well-oiled machine that can generate profit. The 4 pillars of real estate include: cash flow, appreciation, amortization and leverage, and tax benefits.

Gold and silver are tangible assets, but are frequently traded in the form of futures or options, which are financial derivatives.

Why Equities Are the Riskiest Asset Class. Equities are generally considered the riskiest class of assets.

Stocks are a type of security that gives stockholders a share of ownership in a company. Companies sell shares typically to gain additional money to grow the company. This is called the initial public offering (IPO). After the IPO, stockholders can resell shares on the stock market.

As time elapses and the fair value of the assets change, the accounting treatment will depend upon the classification of the assets, described as either held-to-maturity, held-for-trading, or available-for-sale.

Historically, the three main asset classes have been equities (stocks), fixed income (bonds), and cash equivalent or money market instruments. Currently, most investment professionals include real estate, commodities, futures, other financial derivatives, and even cryptocurrencies in the asset class mix.

Remember the 3 A's for retirement saving: amount, account, and asset mix.

Examples of Level 3 assets include mortgage-backed securities (MBS), private equity shares, complex derivatives, foreign stocks, and distressed debt. The process of estimating the value of Level 3 assets is known as mark to model.