What is an Investment – Investing Examples and Five Benefits of Investing
Learn what an investment is, the different types, and how to invest your money wisely for short-term and long-term gains.
In personal finance, there are several essential concepts that we must know when looking for ways to grow our savings. In this sense, investing is an exciting way if you want to make a profit on your possessions in a few months or years.
What is an Investment?
We can say that the meaning of investment is a specific amount of money used to buy goods to increase their value over time. Its value is higher than it initially and generates profits, either in the short or long term.
And what do we mean by goods?
Well, to shares of a company, raw resources, and even the famous cryptocurrencies, basically what you invest in. But don’t be troubled; in the next part, we will explain the possible types of assets, and thus you will better understand what definite assets you can invest in.
But first, to finish sympathetic the concept of speculation, let’s look at an example. The events can be compared to having a plant at home; we invest time to obtain care of it and thus make sure that it flourishes or bear fruit in the future.
Examples of Investments According to their types.
In recent years, a wide diversity of financial resources (or, as we mentioned before, “assets”) have emerged anywhere you can invest your money for future proceeds. Below we will show you the majority of standard investment options and some examples:
In the case of a share, the investor buys an ingredient of the company or enterprise, flattering a shareholder. The ultimate target of the shareholders is to obtain money through the profits generated by the company.
How to buy a share?
- Currently, present are several ways to buy shares; however, in this section, we will talk about the most used.
- A stock market: is an institutional market in which people formally exchange, buy and sell goods.
Crowdfunding or collective funding: in this case, a group of people decides to put their money in shares in their initial stage, that is, those that are not listed on the stock market.
If you choose to invest your money in this type of investment, we recommend using crowdfunding platforms such as Archangels. You won’t have to worry about share price volatility with us because when you invest in private stocks, fluctuations are rare.
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The fact of acquiring a bond means that the user has a small part of the debts of institutions or governments. With sealants, you will receive interest payments regularly, and when the term of the bond is up, you are entitled to receive a return of the face value.
In funds, investors, through a group of fund managers, decide to put their money in company shares, bonds, or raw materials. Today, the most widely used funds are mutual and exchange-traded funds, which we will define below.
Mutual investment funds are characterized by not being listed on the stock exchange, and their value is determined on the same trading day.
On the other hand, exchange-traded funds.
This is another example of a joint investment, where a party called a settlor grants capital to an administrator (trustee) who has the objective of generating profits for the settlor in the medium or long term.
They are also commodities or raw materials (natural resources, oil, precious metals, minerals, agricultural products, currencies, energy).
Said products can be sold at the negotiation time, or quotas are fixed in advance according to the quantity of the raw material for a possible sale in the future. In this way, market stability is promoted to avoid the harsh impact of price variations.
Three Elements to Consider in an Investment.
When it comes time to enter the financial world to get the most out of the money invest, it is crucial to analyze the following factors. By doing this, you will know if it is safe to invest or not.
1. Expected Performance
It refers to how much profit you expect from the long or medium-term investment.
2. Risk Accepted
This is the amount of risk you are willing to take to reach the expected profit target.
In general, the more profitable the speculation, the higher the risk. When investing, remember that you can never lose more money than you started with.
3. Time Horizon
It is the period during which you will keep your money invested without being able to dispose of it. In the end, each type of investment has a different time horizon since this period estimate to be able to get the most out of the capital investment.
That is, the time horizon can be short-term (approximately one year), medium-term (between 1 and 3 years), or long-term (3 years or more). This is very relevant; you could have losses if you are careless with the reimbursement times.
For example, in 5 years, the most advisable thing would be to invest 5-10% of your annual income or your total assets in a portfolio of 20 to 50 startups. By diversifying your investment, you will reduce risk and maximize the profits made.
Five Benefits of Investing
Once you have understood the concept of investment and what the different types of financial investments are, we will now show you several benefits that you can obtain by investing:
1. Preserve the Value of your Capital
The main reason why the majority decide to invest is to prevent their money from becoming stagnant over time.
2. Promote the Growth of your Savings
The fact of investing the savings guarantees a long-term return of profits that can even exceed the amount initially invested. By including this option in your financial plan, you can enjoy economic stability for several years.
3. Generate Stable Secondary Income
Investments can also be a source of additional income that will come in handy at the end of each month. You can combine this secondary source of income with your salary, which will help you with expenses, giving you a more significant margin to save without worries.
4. Save for the Future
When it comes time to retire, it’s essential to have enough money saved to support your lifestyle for several years without relying on children, a partner, or close family members. In this intelligence, one of the most effective ways to have a retirement fund is to learn how to invest the money generated during the years of work correctly.
5. Support Growing Businesses
When you invest in small companies that are emerging or also called startups, you have the opportunity to help them succeed shortly. In addition, it a very profitable option when it comes to getting a return on the capital invest.
Undoubtedly, the world of investments offers us many opportunities to grow our savings. However, you must be careful and go little by little; remember that worthwhile things not built overnight. Be patient and spend for the long term to achieve exponential returns.
If you interest in learning much more about the world of investments, do not hesitate to take our course “Learning to an investor from scratch.
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