Investment means assets that are being purchased with the aim of generating income. An investment is the acquisition of assets, businesses or ventures for future returns.
Investment is futuristic. It is made for the future. Anybody who invests money is looking to reap the rewards in the future. People who invest in Agriculture make their profits after the harvesting period. The goal is not always for today and now, but for an increase tomorrow.
Investments can be in form of money, time effort etc. Investment requires one to put in capital to good use today in order to increase the value over a period of time. An investment also means any arrangement or plan that is used for generating future income.
These include stocks, real estate, lands, machineries, bonds etc.
An action that has been taken in the hopes of raising revenue in the future is also known as investment. People who buy shares, securities, bonds are investing their money.
People who trade stock exchanges, foreign exchange markets and even betting on sports betting platforms see it as an investment. People invest today for the returns they are likely to get.
People also put in resources to acquire skills, knowledge and expertise with a view to increasing their output and income. It is also an investment.
Forms Of Investment
Economic Investments: These are investments that lead to economic growth. Economic growth is related to the investments going on in the country. Investments such as acquisition of machineries, equipment for further production always boost the economy of the country.
Every action taken to generate and increase wealth will automatically have an impact on the economy.
2) Investment Vehicles: These are services that are designed to assist individuals and businesses in the process of increasing their wealth. Many investment banks provide these services. They are saddled with the responsibility of creating capital for other entities.
Investment And Speculation
Investment means the purchase of assets with the intent of holding them for a long time, while speculation is attempting to capitalize on market inefficiencies for short-term profit. Ownership of the assets is the goal of investors, but spectators just want to make profit and move on.
Notwithstanding that spectators often make good judgments, speculations cannot be said to be investment. Speculation is always a higher risk venture than normal investments. Investment is a long term commitment. The money invested can take a number of years to grow and mature.
Investments are usually taken after a careful research has been made. It takes an investor time to carry out due diligence and find out the risks and benefits that could come from the venture. Speculation however is purely a bet on the outcome of price changes usually on a short term basis. Most people invest in stocks and bonds.
Investment and Gambling
Although many people see gambling as investment, it is based on the decisions of the individual. Gambling is a game of chance. Investments are risky yes, as well as gambling, but investments deals with tangible business.
Gambling is a form of making speculation on the outcome of an event like sports.
Investment And Savings
Investment is putting money or capital to work in order to grow it. Money that has not been invested cannot grow. Instead it loses its buying power through inflation. Saving money in banks instead of investing it has a negative effect on the value of such money.
Instead of saving, invest this money in buying shares, stocks or bonds. You can also invest in the real estate sector.
Types Of Investment
As an investor, you have a lot of options for where to invest your money. However, it is important to weigh your options and choose the investment plan best suited for you.
Investments are generally classified into 3 major categories; Stocks, Bonds and Cash Equivalents. Each of these 3 categories has different types of investments in each.
- Stocks
- Bonds
- Mutual funds
- Exchange traded funds
- Options
- Insurance
- Annuities
- Coins and Cryptocurrency
1) Â Stocks
A stock is a security that represents the ownership of a fraction of a company. When you purchase a stock, you are buying a share, a piece of the company. Companies sell stocks to raise cash.
Stocks can help you maximize your investments through the dividends that accrue to it. Investors make money when the value of their shares goes up and they sell it for a profit. Stocks earn high returns, but also have risks than other investments. These companies can go bankrupt or go out of business.
Buying stocks makes you a part owner of the business. A stock represents ownership. The amount of profit or loss you make on a stock depends on the company. The performance of the company affects your stocks greatly.
Again, the type of stock you have and the general stock market operations all affect your stock performance.
2) Bonds
A bond is a loan you offer to a company or government. Bonds are fixed income investment because investors expect regular income payments. Interest are paid on the bonds regularly and at the end of the agreed period, the principal is paid as well.
When you invest in bonds you are also faced with the risk of losing money especially as the prices may fluctuate.Â
Types Of Bonds
Corporate bonds
Municipal bonds
Agency securities etc.
Mutual funds and Exchange traded funds
Some investment companies pool funds from different investors and invest in a specific area. These are usually registered with the Securities and Exchange Commission’s (SEC) as investment companies.
Exchange traded funds has aspects of mutual funds and conventional stocks. ETFs are pooled investment funds that give an investor a share in a professionally managed portfolio of investments.
But unlike mutual funds, ETFs are traded on exchanges and can be bought or sold throughout the day at fluctuating prices.
3) Options
These are contracts that offer the investor the right to buy or sell a security at a fixed price within a specific time. It is not obligatory on the investor to buy. He may ignore the contract if he wishes. As an investor, still carry out research before buying options so as not to loose money.
4) Coins and Cryptocurrencies
Digital assets like cryptocurrencies and coins have continued to rise and appeal to investors. The crypto market has grown in leaps and bounds with billions of dollars raised. And with over a thousand different cryptocurrencies in circulation, investors are tempted to come in.
The Cryptocurrency market is so complex that individuals are finding it difficult to determine the best products and to know the risks associated with each.
Crypto currencies are based on block chain technology which is the use of a digital ledger to record transactions chronologically and publicly. This technology makes it a decentralized network. This way, everybody can share and retain records.
It removes intermediaries in the market. Nothing is hidden from anyone. Crypto currencies are digital assets used to store value through cryptography. The crypto market remains a very volatile place. Investors are also warned of the dangers involved, so as to take note when to take profits and re-strategize to enter the market again. In crypto, entry point is important.
Because there is no centralized network, you could lose your funds at any time. There are a lot of underperforming coins in most exchanges. Investors should be careful as the risks involved are too wide.
Other investments include commodity features, annuities, Retirement, insurance etc. No matter your investment, you will need to open a brokerage account from where you can buy and sell your investments. Brokerage accounts are just like bank accounts, but you will only buy and sell investments with your brokerage account.
When you open and fund your brokerage account, you can start purchasing shares, stocks, bonds etc. Many brokers will also provide you with educational resources on their web site to get you started on your investment journey.
Importance Of Investment
1) Investment brings about present and future financial security. Investment generates income over time. Some investment yields interests which can be paid to you as passive income while the principal remains in the business.
2) It helps to develop your potential to meet your financial goals. People invest their money with specific goals in mind. The goals may be to buy a new car, a house, a vacation or even a bulk sum to invest in other businesses. Investments bring you closer to realizing your goals.
3) It protects your money from inflation. Liquid cash and savings are not protected from inflation. Investing your money protects them from inflation.
4) Investment can serve as your retirement fund. You can invest in your youth and save it as your retirement plan. These investments ensure that you have a means of income in your old age. Most government workers are now taking advantage of this opportunity to prepare themselves for retirement.
5) It can be transferred to offspring as inheritance. Your children can inherit your investments upon your demise. Most learned parents take this part very seriously. They make such investments sometimes in the names of their children knowing that they will inherit them.
The future is not assured for anyone, so parents bequeath these investments to their children to give them an edge in life.
6) Tax efficiency. Your wealth which you have invested are protected from heavy taxation by the government.
Features Of Investment
1) Capital Appreciation: Every investment is expected to rise over time. This is the most important reason for investing. The investor is expecting that his investment will rise in value and profit.
2) Legality: Before investing, check the legal status of the business. Ensure that the business is registered within the country of operations. Check their records with the Securities and Exchange Commission or other government agencies saddled with the responsibility of registering companies and giving them legal backing.
3) Expectation of return
4) Wealth creation
5) Economic development
Characteristics Of Investment
1) Risk factor every investment is followed by a measure of risk. Risk is the likelihood of losing your wealth if care is not taken. Low risk investment is better as the possibility of losses is less.
2) Returns on investment: Every investor expects to make profit on his investment. This is the reason for the investment in the first place.
3) Safety: Investments should offer some sort of surety for the investor’s money. The investor should have a sense of safety when making their investments.
4) Income stability: Investments should offer regular income to the investors without issues. Investors should be able to withdraw their income from the investment regularly without any problems.
5) Liquidity: Liquidity refers to how quickly it is to sell the investment. Investors should be confident that whenever they wish to sell their investments, that they can easily do so.
In conclusion, investment in general is an exciting adventure especially when your portfolio is doing well. People put down money every day for the benefit of future returns. People invest in companies and businesses, Agriculture, real estate, manpower development etc.
The aim is to make profits in the long run. However, you are expected to invest with sense. There are a lot of scammers looking for prey especially online. Before putting your money, do research. Read extensively. Ask questions thoroughly. Avoid get rich quick schemes.
They are in my opinion most times scammers. Avoid people and businesses who offer you an unreasonably high return on investment especially when they don’t have any tangible business. They are scammers. Investment is a key to a bright and glorious future, but be careful as all that glitters is not gold
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