The Building Blocks of Wealth – A Comparison of Popular Investment Options.  
There are many different investment strategies and financial instruments available to investors, each with its own benefits and risk factors. This article outlines some of the basic similarities and differences between certain types of investments commonly referenced in the media. This article is intended to be helpful for those new to investing and also individuals looking to widen their financial understanding. If you have any questions regarding your investments, please feel free to contact us.
Equities (Publicly-Traded Stocks)
Purchasing the stock of a company provide investors with an ownership interest in a public company. It gives the investor an opportunity to participate in the appreciation and depreciation in the price of the stock over time. Additionally, stockholders may receive dividends, which are distributions of corporate profits made at the discretion of a company’s management. Equity securities tend to be highly liquid and can often be bought or sold electronically within seconds. This also means that prices of equities can fluctuate significantly within a short period of time. News reports, public company filings, and even rumors can cause the price of a single stock to rise or fall. As such, investors are strongly urged to diversify their investments when holding individual equities to minimize risk within their portfolios.
Mutual Funds
Mutual funds are pooled investment vehicles which allow investors to hold diversified portfolios and have them managed by professional fund managers. These funds may offer a wide variety of strategies and may hold equities, bonds, and derivatives such as options and futures. Although mutual funds offer diversification amongst geographies, risk levels, or asset types, investors may often hold a combination of several different funds to maximize returns and protect their portfolio against losses. Mutual funds generally charge lower management fees than hedge funds, and are generally more liquid in that they generally allow for purchases and sales within one business day. 
Index Funds
Index funds are essentially mutual funds which are designed to match the performance of a market index. As an example, a mutual fund may be intended to track the Russell 3000 Index. Such funds are usually passively managed, and as such, tend to capture the increases in the underlying index. These funds, however, are generally not protected against sharp declines in the value of the underlying index. Index funds typically charge lower management fees than ordinary mutual funds because their strategies are mostly dictated by the underlying index. As a result, portfolio turnover may be less frequent and transactions may even be automated to closely mirror the performance of the underlying index.
Private Equity
A private equity investment allows an investor to purchase shares of a company which are not traded on a stock exchange. These shares are often purchased through a direct investment into the private entity or through a private equity fund, which invests in private companies as an intermediary on behalf of its investors. Generally, private equity investments offer less transparency than public companies because they are not subject to the same strict disclosure requirements. This means that obtaining timely information for purposes of valuation or quantitative analysis may be difficult and time-consuming. Additionally, private equity investments are generally less liquid and may require investors to commit their capital for months or even years before shares may be sold. 
Exchange-Traded Funds (ETFs)
Exchange-Traded Funds combine the active management element of mutual funds with the increased liquidity of publicly traded stocks. While a purchase or sale of mutual fund shares may take one business day, ETFs may be purchased and sold within seconds. ETFs offer a wide range of strategies and may often use derivatives and leverage with the goal of magnifying returns for investors. Lately, demand for more aggressive investment vehicles has led to the creation of leveraged ETFs, which amplify the performance of an underlying index by a factor of 2 or 3. This means that a 5% increase in the underlying index can result in a 15% increase in the ETF. Such leveraged ETFs are meant to be held only for short time periods as they reset on a daily basis. As a result, a long-term investor looking to capitalize on appreciation in the underlying index would generally be highly disappointed if attempting to use leveraged ETF to accomplish their desired returns.
Hedge Funds
Hedge funds are similar to mutual funds in that they are pooled investment vehicles which provide active asset management. The difference, however, lies in the liquidity and transparency when compared to mutual funds. The disclosures required by hedge funds are minimal and do not provide a complete picture of the underlying investments or strategies being undertaken by the investment manager. Hedge funds also charge higher fees than mutual funds, with “2/20” being the most common fee structure. It means that the fund charges 2% of asset under management annually, and also charges 20% as a performance fee. A hedge fund utilizing such a fee structure would allow the fund to keep 20 cents of every dollar earned by investors. This policy does not work in reverse, as investors are made to absorb all losses incurred by the fund.
Real Estate Investment Trusts (REITs)
A REIT is an investment vehicle which provides investors with an opportunity to participate in the revenue earned from the hotels, office buildings, residential properties, interests in mortgage securities and/or other assets held by the Trust. Essentially, investors act as a conduit and provide the REIT with the capital needed to purchase the underlying assets with the intent of collecting future payouts. As the process of purchasing and selling real estate can be quite complex, time-consuming, and costly, REITs often require investors to lock in their investment for a certain period of time before they can exchange their shares for cash. While this brings stability to the overall portfolio held by the REIT, investors may be paying the price for this stability by way of their long-term financial commitment. While some REITs are non-marketable, there are also marketable REITs that offer additional liquidity and those that are publicly-traded on established national stock exchanges.
Bonds
Bonds allow investors to collect interest paid on corporate and governmental debt. Interest may be paid periodically in cash, or through a single appreciated amount in the future (zero-coupon bonds). Unlike dividends, entities that issue bonds are required to make the payments to the debt-holders as described in the issuing documents. Bonds may produce a more steady income stream than holding stocks. However they are subject to credit risk because the ability of the issuing entity to make its payments in a timely manner is tied directly to its financial stability. Therefore, riskier entities will generally issue debt which pays a higher percentage return than more financially stable entities. In addition, bond prices are subject to interest rate risk in that bond prices tend to fluctuate in relation to changes in market interest rates. As such, investors are strongly urged to diversify their investments when holding individual bonds to minimize risk within their portfolios.
Energy Development
Oil and natural gas investment adds several things to a portfolio. United States energy development is a continuous process and the government offers tax incentives for individuals and business to invest capital into the energy sector. Tremendous technology advances in exploration, drilling and raw material conversion into energy coupled with tax deductions that may be used against earned income makes energy development an attractive investment. Unlike the continued turmoil in the equity and bond markets world-wide, energy development continues to create an attractive return on investment with tax advantages on earnings coupled with a stable growth environment. 

Wealth Builders Group, LLC is an Independent fee and offset commission financial planning group. We offer comprehensive investment management services tailored to fit the needs of each individual client. Our process involves creating highly customized portfolios to obtain the desired level of return while effectively managing risk through diversification, ongoing in-depth research, and periodic portfolio rebalancing. 
In choosing investments for our clients, our methodology emphasizes transparency, liquidity, and value. We also never accept commissions or referral fees, which allows us to only offer investment strategies most suited to the needs of our clients. As a result, our clients can enjoy more flexibility in choosing and adjusting their investments over time.