The Two Types of Investments You Need to Know

In this video, I break down the basics of investing, and really, it all comes down to understanding just two types of investments:debt and equity.

If you’ve ever watched Shark Tank, you’ve actually seen both types in action. Let’s say a shark says, “I’ll give you $10,000, and you’ll pay me back in 5 years with 10% interest each year.” That’s a debt investment, they’re lending money to the business, and they’ll earn interest until they’re paid back.

Now, if the shark says, “I’ll give you $10,000 for 10% of your company,” that’s equity. They now own 10% of that business and are entitled to 10% of the profits.

At Merited Wealth, we use these same principles when we invest for our clients, just with much larger companies. Think about Amazon, Apple, Visa, or Mastercard.

• When we buy stocks, we’re buying equity — ownership in the company. If the company grows and profits increase, the value of our shares usually goes up.
• When we buy bonds, we’re buying debt — we’re lending the company money. In return, we earn interest and eventually get our original investment back.

The key difference? Stocks (equity) tend to be more volatile but offer higher growth potential, while bonds (debt) are typically more stable but with lower returns.

Once you understand these two — owning debt and owning equity — you understand the foundation of almost every investment out there.

We’ll be creating more videos like this to help you get more comfortable with investing and make informed decisions. And as always, if you have questions, don’t hesitate to reach out.