Investing is the process through which money and diverse forms of capital are put in an enterprise in order to earn 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 the earnings. On the other hand, investing may be regarded as a long-term activity that entails having an entity’s money earn more. There are many advantages which are associated with investing. Investing outpaces inflation so that financial goals can be attained.
Investments come in diverse forms. They are also known as investment vehicles. The risks and benefits depend on the particular type. To invest effectively, investors have to evaluate their objectives and resources. Regardless of the chosen investment vehicle, its aim is profit accumulation.
One of the most commonly used investment instruments is stocks. Basically, these represent investments in a publicly traded entity. These businesses issue shares or stakes of ownership to the public. The purchase and sale of stocks is carried out on the global stock exchanges.
Successful stock traders need to have a working knowledge of market trends and other factors which affect the stock market prices. The prices of stock may increase or decrease based on developments within the company, its earnings, and other factors.
Bonds are investment tools and a form of loans made to governments and corporate entities by investors. In return, governments and corporations pay fixed interest rate to the investors over an agreed period or term. At the end of the period, the lender recovers the principal amount.
The bond investment carries medium risk to the investor. It is more secure relative to other forms of investment in that its returns are almost always guaranteed. However, bonds do not yield returns that are as high as those of individual stocks. The value of bonds is evaluated by third parties. Investors purchase bonds based on the reputation and trustworthiness of the authorities or corporation that issues the 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 types as to give investors alternatives and opportunities to specialize in the sectors they desire.
Investing is regarded as advantageous for those who are unable to do daily research and evaluate the stocks available on the market. It provides access to experts who can handle selling and buying of issues for the investors. Mutual funds carry different levels of risk from low and medium to high, depending on the sector where investors decide to commit resources.
Real estate investment commits funding to a property to earn income through lease or rental. It always involves immovable property such as land and permanent assets like buildings. The value of a real estate investment is determined by the acquisition of property that involves the bestowment of rights such as possession and control.
Investment banks are financial structures that aid governments and corporations in raising funding. They function as agents in the issuance of securities. Investment banks also assist businesses that deal with derivatives, mergers and acquisitions, etc. Other services offered by investment banks are trade of equity security, derivatives, fixed income instruments, and market making. In contrast to commercial banking institutions, investment banks do not require deposits from their customers.
Choosing between different investments, is not an easy task. Visit Financial Dictionary to learn how to make informed financial decisions.