Investment Products
What is an Investment Product?
An investment product is a product offered to investors based on an underlying security or group of securities that is purchased with the expectation of earning a favorable return. Investment products are based on a wide range of underlying securities and encompass a broad range of investment objectives.
Understanding Investment Products
Investment product is the umbrella term for all the stocks, bonds, options, derivatives and other financial instruments that people put money into in hopes of earning profits. The types of investment products available for individual and institutional investors can differ significantly but the basic profit motive is behind all of them. A wide range of investment products exist within the investment universe to help investors meet short-term and long-term investment goals. Overall, investors purchase investment products for their capital appreciation potential and income paying distributions.
Capital appreciation and income distribution are two standard classifications for investment products. Some investment products are purchased by an investor primarily for their potential to increase or appreciate in value over time given specified growth factors. Other investment products may have an additional income paying component. Fixed income investments such as bonds and commingled bond funds offer investors the opportunity to purchase an asset that may increase in value while also paying out fixed interest payments or capital distributions. Other income paying investment products include dividend-paying equities, real estate investment trusts and master limited partnerships. Modern portfolio theory suggests that an investor have a diversified portfolio of investments including a variety of investment products to obtain an optimal risk-return reward for their investments.
KEY TAKEAWAYS
- Investment product is the umbrella term for all the types of investments individual and institutional investors can access in the market.
- There are many, many investment products on the market and more are being created and customized for clients everyday.
- Investment products generally focus on some mix of capital appreciation and income generation.
- An investor’s risk tolerance, market experience and knowledge helps to narrow down the types of investment products that should be considered.
