26+ Sample Investment Contracts

What Is an Investment Contract?

Investment is a term that refers to an item or asset an individual obtains and uses to generate money. An investment is an asset bought that will produce money later on, or it can then be a source of profit after being sold. An investment contract is a written agreement where one party decides to invest his/her money on stocks, properties, or bonds in exchange for an ROI or return on investment. For example, a small business may decide to invest in other companies or bring third-party investors to invest in their company under an investment contract. The contract will state when and how an investor can get his ROI. If the investor doesn’t receive his portion, he/she has the right to regain his/her investment under a contract. Even if there are risks linked with investing, remember that its primary purpose is to generate income. For example, an individual may invest in a company that soon after files for bankruptcy.

According to Statista, in 2018, 55% of the American people invested their money in stocks.

Though the number of people investing in stocks has slightly increased over the past two years, it is still low compared to its peak in 2007, which totaled to 65%.

In real estate, Statista reports that in 2019 the total property sales coming from foreign buyers in the U.S. reached $78 billion.

The Common Types of Investments

Investing can be challenging and intimidating for most of us because there can be several options to choose from, and you have to think of where you can best invest your money carefully. If you are new to this, you can ask help from a financial adviser under an investment advisory agreement. So, moving on, here are the common types of investments.

Annuities. A personal investment contract between an individual and an insurance company is also known as an annuity. Under this agreement, a person will have to offer a lump-sum or monthly payments in exchange for regular disbursement in the future. Annuity becomes a steady source of income for a person after he/she retires. A person should only withdraw the funds when he/she reaches the age of 60 and collect them without penalty. There are two types of annuity: immediate and deferred. One can purchase immediate annuities from an insurance company by paying a lump-sum. In return, the company guarantees the contract signee to receive regular income almost immediately. On the other hand, a deferred annuity promises to give regular income at a fixed future date. Moreover, you can decide when to receive periodic payments. It can be for 25 years or a lifetime. Note that securing income for a lifetime can lower the money you see on your check.Bonds. Buying a bond means that you are lending your money to a business entity, either a company or a government institution. Businesses offer corporate bonds, while government entities offer municipal bonds. Corporate bonds are debt securities that companies issue and sell to investors. Initially, they gain capital from investors and return those investments with interest. Municipal bonds are debt responsibilities that the government uses for building schools, highways, and hospitals. After the investments mature, you’ll get your money back with interest. The ROI you collect from bonds is usually lower than what you get from stocks, but they pose a lower risk.Certificates of deposit. If you want a low-risk investment, you can have a certificate of deposit. You give the bank money for a prearranged time. When the time is over, you’ll get your ROI, which is a set amount. Naturally, the longer your money stays in the bank, the more interests you’ll obtain. CDs don’t pose a significant risk to the investor since they are under the protection of the Federal Deposit Insurance Corporation. The amount of money they protect is up to a maximum of $250,000, and they would even cover for the money you lose if a bank collapses. However, you can’t withdraw the money you invest easily. It must finish its term because premature withdrawals come along with penalties.Cryptocurrencies. Cryptocurrencies are digital currencies protected by cryptography. One feature that defines cryptocurrency is its immunity to the government. Moreover, cryptocurrency is a system that grants safe payments online, and the system converts the money into virtual tokens. Through the system, the transfer of funds becomes easier between the parties involved, without the help of banks or other financial institutions. Instead, the funds are safe to transfer with the help of private keys, public keys, etc. However, cryptocurrencies can be an instrument used for illegal activities, such as tax evasion and money laundering.Exchange-traded funds. ETFs are like mutual funds since they are a pool of investments following a particular market index. The difference is that one can purchase mutual funds in fund companies or investment companies, while one can buy ETFs in stock markets. Fund companies are in charge of investing pooled money of investors. They can be publicly or privately owned, and they market open-end and close-end funds. ETFs price rise and fall throughout a single day, while mutual funds depend on your investment’s net value.Mutual funds. A mutual fund is a combination of several investors’ money. It is money that they invest in different companies. They can either be passively or actively managed. A management team typically manages an active fund. On the other hand, a passive fund only follows an index. Market indexes serve as indicators for economies. In the U.S., investors and the media usually follow the Nasdaq Composite, Dow Jones Industrial Average, and S&P 500.Options. Options are derivatives. Derivatives are financial securities with values that rely on a benchmark. A derivative in itself is an investor agreement, where the price of the derivative depends on an underlying asset. An underlying asset can be a bond, commodity, stock, etc. An option offers the investor a chance to trade an underlying asset, but it depends on what the contract stipulates. There are two terms for options: call options and put options. The former allows a holder to purchase an asset on a set price and timeline. The latter allows the owner to trade the asset on a fixed price and timeframe. Each option has an expiration date, and usually, you purchase them from retail or online brokers.Retirement plans. A retirement plan is also a type of investment. You can obtain a retirement plan from your employer. If you are not an employee, you can get an individual retirement account. An IRA is an investing tool that has its advantages when it comes to tax. One example is a traditional IRA. Usually, payments are tax-deductible for this type of retirement plan. So, if an individual places $5,000 in the IRA, it is the same amount the government deducts on his/her taxable income. However, if that person withdraws the money during retirement, the funds will have a regular income tax cost. As of this year, traditional IRAs must not exceed $6,000, but if you are more than 50 years old, you can pay a maximum of $7,000 every year.Stocks. One of the most common forms of investment is stocks. When you purchase stocks, you are purchasing a share in the ownership of a public company. Examples of public companies include Apple and Facebook. They are companies where you can buy stocks. Once you purchase stock, you wait for its price to increase, then you sell it. However, the stock price may also decrease, and you can lose money. Additionally, you can ask help from a broker personally or search for a brokerage firm online to buy stocks.

How To Put Money Into Stocks

One way to increase wealth is to invest your money in stocks. For investors who aim for long-term, stocks can still work out even if the market becomes volatile. The question is, how do you invest your money in stocks? Follow the steps below.

Step 1: Open an Account

You have to open an account. If you plan to do it on your own, you can open a broker account. If you need assistance, you can open an account with the help of a robo-advisor. A brokerage account online will offer you the fastest and cheapest way to purchase funds, stocks, and other types of investments. That is the active option. On the other hand, a robo-advisor will do the investing for you. Initially, a robo-advisor will inquire about your goals and use its own system to reach that goal. Usually, robo-advisors bill a 0.25% deduction on your balance.

Step 2: Choose Where You Want to Invest

Most often, people choose between stock mutual funds and stocks. Stock funds, specifically exchange-traded funds, are funds that allow you to buy little pieces of several different stocks in one transaction. So, when you put your money in a mutual fund, it means you own portions from various companies. Stock funds are also known as equity mutual funds.

If you want to invest in individual stocks, you can purchase one share or more on a single company. Buying individual stocks from different companies is possible, but it can cost you a lot of money. The diversity of stock funds pose lesser risk compared to individual stocks. Moreover, if you choose to purchase a share from the right company, it can pay you off generously. Nevertheless, the chances of getting rich with individual stock are slim.

Step 3: Set Your Budget

The money you need to purchase in stocks depends on the price of the share. It can be for a small amount or a significant amount of money. If your budget is low, you can opt for an ETF, which is a type of mutual fund. Stock mutual funds typically cost a minimum of $1,000, but you can purchase ETFs like how you buy stocks, and it cannot be more than $100.

Step 4: Begin Investing

When you invest stocks, you must have a strategy in mind. According to Warren Buffet, a cheap S&P 500 index investment can be one of the best choices for American investors. Moreover, he says that when investing in individual stocks, one must choose a company with great potential for growth. Furthermore, it would be best if you learn more through research about mutual funds or stocks. Once you have a deeper understanding of investments, then you can strategize.

FAQs

Are forex and cryptocurrency alike?

The answer is both a yes and a no. Yes because both involve converting currency for a different currency. However, different factors influence them.

What is an equity investment agreement?

An equity investment contract is an official agreement between an investor and a company, where the company promises the investor an ROI. Equity investing means that you offer funds to a company in return for a stake.

How do you create an investment contract?

The following are steps to create a simple investment contract: (1) Write the necessary background information of the parties involved. (2) Input the promises and covenants of the agreement. (3) Include the payment terms. (4) Identify the deliverable. (5) State the conditions regarding termination. (6) Choose a governing law.

An investment contract is a document that protects an investor’s money, though the reality remains that investing is risky. However, having an investment agreement is much better than having none because it informs an investor what he/she should expect from the money he/she invested. You can check one of our examples of investment contracts or investor agreements forms above for your reference and use.