Four Stock Market Investment Types

Types of Investments

In every stock market, there are four fundamental 'types' of investments. These four make up the vast majority of money that flows through the market (in fact, over 85% is just in Shares and bonds).

By understanding the behaviours, cycles and drivers, of these building blocks and using them to create our investment strategies, we can identify and take advantage of key opportunties as they arise.

Major Market Forces

Size matters

Focusing on the largest markets eliminates the risk of being unable to enter or exit at critical times (such as during a market crash) when everyone is selling at the same time. For a transaction to take place, there must be a buyer and a seller, so if there are not enough buyers, then we may not be able to exit a position at an acceptable price or even at all.

Characteristics

Each of these contains underlying personalities. That is to say, people buy and sell them for distinct reasons. As we learn these reasons, it provides us with a playbook for how to position ourselves during certain environments.

Let's take an example of Gold.

Whenever there is a doubt in the government policy direction or inflation, we see the price of gold increase. Inversely, we also typically see the price of gold decrease when interest rates increase because gold itself doesn't pay any returns. So a 5% return on a treasury bond looks a lot more attractive if inflation is stable.

Likewise, each of these investment types has major influences. If we learn to recognise those, we can use them to position our portfolio to profit.

In Summary

Understanding the four fundamental investment types—shares, bonds, commodities, and currencies—is essential for navigating the stock market with confidence. These elementals aren't just categories; they reflect distinct investor behaviors, economic cycles, and strategic opportunities. By recognizing how each reacts to forces like inflation, interest rates, and policy shifts, investors can build resilient portfolios that adapt to changing conditions.

Focusing on large, liquid markets also ensures flexibility during turbulent times, helping investors avoid being trapped in illiquid positions. Whether it's the flight to gold during uncertainty or the appeal of bonds in a stable rate environment, each type of investment offers signals we can use to anticipate and respond to market shifts.

In short, mastering these building blocks isn't just theory—it's a practical toolkit for smarter, more strategic investing.

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