Investments: concept, types, objects for investment
Almost every person whose income allows not only to meet daily needs, but also to save when accumulating a certain amount, thinks about how best to use it. Having enough capital allows you to make a profit through investments, but what is investment and what is it for?
The concept of investment
Investment is the investment of financial resources for further profit. Accordingly, the investor is the current owner of the funds (individual or legal entity) who is interested in investing in a particular object. The essence of investment is the right choice of an investment object, which in the future will be able to generate income and increase the invested capital. Investing allows you to:
- Preserve capital in the face of inflation;
- Expand your own business with the accumulated funds;
- Acquire a new enterprise for profit;
- Improve the financial literacy of the investor.
Main types of investments
All investments can be divided into 2 basic groups:
- financial investments
Provide investment in such financial instruments as stocks, bonds, shares and other types of securities. A variety of financial investments are speculative. The main difference criterion is the term of the deposit. Speculative investments aimed at making a profit by increasing the value of the investment object in the near future and can last several days or weeks. The instruments for carrying out such activities are futures, options, indices, some analysts also include cryptocurrency here.
- Real investment
This is the use of capital for the acquisition of production facilities, plots of land or other material objects, due to which income can be obtained in the future. This also includes intangible things – objects of intellectual property.
The main advantages of such investment are that investment objects are less dependent on market changes and can provide more income than financial investment instruments.
Investment methods should be distinguished from types – a set of ways to attract contributions to a project or enterprise.
The main question that arises for the owner of capital is where to invest? The most popular investment objects are:
- Bank deposits
The easiest and most reliable way, which is used by the majority of citizens who own savings. Such an investment really has a number of advantages, including minimal risks, the ability to return your funds at any time and receive passive income. However, the efficiency of investment in a deposit is one of the lowest on the market, the income received barely allows you to cover the currency inflation index. That is, banking investments allow you to save capital, but do not allow you to increase it.
- The property
Investing in real estate is an effective and relatively simple investment tool if you have enough money to buy real estate. You can buy residential or commercial buildings, as well as plots of land, resource deposits or water bodies. The main difficulty lies in the ability to properly manage the acquisition so that it makes a profit.
For example, when buying a small apartment in a prestigious area and renting it out, you can return the money spent for 5-10 years and receive further income from rent and an increase in the market price of housing.
- Stock market
Investing in the stock market involves the purchase of securities. Stock deposits bring more income than bank deposits, but they are also associated with greater risks. It is better for an inexperienced investor to contact a qualified brokerage company for advice and assistance in choosing financial instruments.
Investment management (that is, the purchase / sale of securities) is carried out by the owner independently or transferred to an investment fund that determines an investment portfolio (a set of stocks, bonds and other instruments) and pays income to the owner.
Investing in a business is, first of all, investing in your own business, so the risks inherent in them can be minimized by making informed decisions on the management and development of the enterprise. Investing in a business will not bring passive income, you will have to work to make a profit.
You can also invest in someone’s business, such investments also require some participation in the development of the business, but they can bring more income in the long run due to the lack of the need to spend money on creating and promoting the business.
Investing is a great way to preserve and increase accumulated capital. The modern market provides various ways and objects of investment with different indicators of efficiency and profitability. A novice investor must learn that the amount of income received is directly proportional to the size of the investment and the risks associated with it. You should not invest in projects that promise multiple returns with minimal investment and in the shortest possible time – in most cases they lead to loss of investment.