Investment Markets

What is your flavor?

 

 

There are a wide variety of markets in which one can invest money. The main markets are stocks (equity), bonds, forex, derivatives and physical assets. Furthermore, within each of these types of markets, there can be even more specialty markets.

 

The market that is most familiar to the average investor is the stock market. This market allows investors to buy and sell shares of ownership in publicly traded companies. Money is made in this market in two main ways. The first is through capital gain, in which the value of each share increases in value. The other is through dividends, in which companies pass on income to investors.

 

The debt market is used by governments, companies and financial intermediaries to issue debt instruments to raise capital. The debt issuers then make regular payments to debtholders in the form of coupon payments and, once the debt matures, pay back the principal on the debt. The most common type of financial instruments issued in this market are bonds, bills, notes and certificates of deposit. There are also more exotic types of debt including mortgage-backed securities and collateralized debt obligations.

 

The forex market allows investors to speculate on changes in the exchange rates between currencies. Investors will purchase one currency by selling another in the hope that the currency they purchased goes up in value compared to the one they sold. In this market, because the moves between currencies are generally small and investments are shorter term, a lot of leverage is used. Some forex brokers allow leverage as high as 500:1, which means that you can control $500 for every $1 you invest.

 

The investment in physical assets or commodities is essentially the purchase of assets such as metals, jewelry, real estate, cattle and much more. In this market, investors hope that the price for which they can sell an asset is more than what they paid for it. The risks and costs associated with this type of investment will differ with each type of physical asset. For example, there can be holding fees on gold; if you own cattle, the cost of caring for them is considerable.

 

The last major type of investment is an expansion of all of the above types of markets. Derivatives are securities that derive their value from an underlying asset such as a stock, interest rate, currency or physical asset. Investors in these types of securities can go long or short on the underlying asset and can purchase either the right or obligation to purchase or sell it. As the value of the underlying asset changes, the value of the derivative changes as well. The major types of derivatives are options, futures and forwards.

The Top 4

Sectors Driving U.S.

Economic Growth

Energy


America is in the midst of an energy renaissance. Thanks to technological advancements in drilling and hydraulic fracturing (fracking) of shale formations, oil and gas production has increased dramatically. The industry’s three-year growth between 2010 and 2013 reached 168%.

 

As a result of this energy boom, the United States has ousted both Saudi Arabia and Russia as the world’s biggest oil producer and surpassed the latter as the world’s largest natural gas producer. The U.S. also has more wind energy powering its grid than any other global nation and is making strides in solar power technology.

 

The explosion in shale oil production has been instrumental in aiding the nation’s recovery, bringing both economic and wage growth to the country. In 2012, the sector introduced 2.1 million new jobs. Consumer wallets have also been affected, with the average household disposable income increasing by $1,200.

 

Currently, the U.S. invests a record $200 billion in oil and gas and is moving towards reversing the decades-old ban on crude exports.

Manufacturing

 

Manufacturers contribute $2.09 trillion directly to the economy, an increase from $1.73 trillion in 2009. The sector accounts for 12% of the GDP and supports 17.6 million U.S. jobs.

 

The industry is expanding, meaning there is an increase in output. Though factory expansion slowed in December, The Institute for Supply Management – a trade group of purchasing managers – reported its manufacturing index was at a three-year high just two months before. The Institute also reported manufacturing employment measured a four-month high.

 

The energy sector’s growth has directly impacted that of manufacturing. Fracking has created a boom in manufacturing jobs and the cheaper gas prices has made manufacturing more competitive. It is estimated that 4.2% of all manufacturing jobs in 2025 will be linked to the United States’ current oil and natural gas surge.

Transportation


Not surprisingly, growth in manufacturing has led to an enhancement of the logistics and transportation sector. Private companies in the general-freight trucking sector have showed continued sales and profit growth since 2010. As a general indicator of national freight transport, gains in the trucking industry show a greater demand for domestic shipments.

 

Mass transit has seen record ridership as gas prices continue to plummet. Transit ridership has risen almost 40% since 1995, and buses, trains and subways were used by more Americans in 2013 than in any year since 1956.

 

As the economy improved, transit agencies upgraded services as more people utilized the systems to get to an increasing number of jobs.

Spending in the industry, which includes air, freight, maritime and trucking services, totaled $1.33 trillion in 2012, representing 8.5% of the annual GDP.

Healthcare


At the end of 2013, the healthcare industry enjoyed a 135% three-year growth rate and brought in $21.8 billion, making it one of the fastest-growing industries. Thanks to an aging population and rising incidence of chronic diseases, the sector continues to grow and is indeed growing faster than the rest of the market.

Increased access to healthcare and technological advancements have also become a widespread trend.

As a result, healthcare spending as a percentage of the nation’s GDP boosted to 17.4% in 2014.


Investor interest in healthcare and biotech stocks was huge last year, and the healthcare sector dominated the IPO market. Of the 288 IPOs registered in 2014, nearly 40% of those were healthcare-related. Healthcare stock growth has proven strong and also safe during turbulent economic times.