Investing is the process through which financing and various forms of capital are put in a company in order to produce a profit. In other words, investment involves the purchase of a financial product or an item of value in order to make a profit. Investment involves the use of money for profit generation.
Investment is different from savings in that the latter sets aside a certain amount of one’s earnings. In contrast, investing is a long-term strategy that aims at accumulating more money. Investment is associated with a number of advantages. Investing outpaces inflation so that financial goals can be attained.
Investments come in diverse forms. These options are sometimes called investment vehicles. The risks and benefits depend on the particular type. Investors have to determine their goals and funding in order to invest in the most efficient manner. However, no matter what investment vehicle is chosen, the rule is that instruments are selected for the purpose of earning higher profits.
One of the most preferred investment classes is stocks. Basically, these represent investments in a publicly traded entity. These companies issue shares or stakes of ownership to the public. Purchasing and selling of these stocks is carried out through the stock market exchanges located almost everywhere in the globe.
Individuals who trade stocks with success have good knowledge of market tendencies and the various factors that determine stock prices. Stock prices go up and down depending on company’s operations, profits, and other factors.
Bonds represent investments which are essentially loans made to corporate entities or governments by investors. In return, governments and corporations pay fixed interest rate to the investors over an agreed period or term. The principle amount is due to the investor when the term is over.
The bond investment carries medium risk to the investor. Bond investments carry greater level of security because returns are guaranteed in most cases. However, the returns are less in comparison to individual stocks. Third parties make assessment of the bonds’ value. Investors make decisions to purchase bonds depending on the trustworthiness and reputation of the corporate entities or governments that issue bonds.
Another common investment instrument is the mutual fund, which pools together a specific set of stocks and bonds. Mutual funds are classified into different kinds as to give investors options and opportunities to specialize in the industry they desire.
Investing is preferred alternative by those who lack time or expertise to perform daily research and assess the stocks on the market. It provides access to experts who can handle selling and buying of issues for the investors. Mutual funds can range from low to high-risk types of investments depending on the sector the investor commits his resources to.
Real estate investment commits funds to a property to generate income through lease or rental. Real estate investment focuses on immovable property such as permanent assets and land. The investment value is determined upon the purchase of a property and the following bestowment of rights, e.g. control and possession.
Investment banks represent financial structures that assist authorities and corporations in raising funding. It is their responsibility to insure stocks. In addition, investment banks cooperate with businesses that are engaged with mergers, derivatives, and acquisitions. Other services offered by investment banks are trade of equity security, derivatives, fixed income instruments, and market making. Unlike commercial banks, clients of investment banks are not required to make deposits.
If you need information about investment classes, please visit Financial Dictionary for more information.