An investment is a way of generating income in the future. An investment is made by purchasing items or goods that may not be used up today but are used in future to produce a fortune. In finance, a financial asset acquired with the idea that the asset will generate income in the future or will be sold at a higher price for a profit is defined as an investment.
Many times, people confuse investments with savings; however, these two are terms with absolutely different meanings. Investment can be seen as a way of obtaining returns whereas savings is a passive way of collecting wealth for the future or for some purpose.
Why is investment important?
Investing money in various economic avenues guarantees that your money grows instead of just lying in your bank account as savings. Investments that yield returns take care of extra expenses such as medical expenditure, travel expenses, etc. Investments are indeed a good way to receive income from your accrued wealth. Tax minimization can also be accomplished by capitalizing your money on various investment tools. Making a certain number of investments lead to a certain amount of money that plays a very important role in providing financial security to your loved ones.
Types of investments
Investments can be divided into 2 distinctive types, namely traditional investments that encompass investing in financial products like bonds, shares, real estate, etc. and alternative investments that include acquiring jewelry or precious metals, hedge funds, venture capitals, etc.
How to begin with the process of investing?
Some of the simple questions for people are how to start investing and where or which financial product to invest in? The process of investing begins with planning and understanding financial goals, for which you would be saving, and for this, you will have to analyze the financial assets that you already possess and you are willing to invest. The process is then followed by utilizing investment tools to determine how much you would be saving for the future. You may be new to investments or you may not know what to invest in. Hence, to help you make a better decision, some of the best investment options that are open and affordable to everyone, including the common man, have been listed as follows.
A bond is a piece of a loan made to larger organizations that include corporations and national governments. The borrowing party promises to pay the bond back on a particular date and until then, the borrower pays interests to the bondholder. Bonds pay off in two ways; firstly, it acts as a source of income through interest payment, and secondly, payment can be received on reselling the bond.
A stock is a type of security that implies on an individual who purchases it. In other words, the individual, on buying stocks from a company, can claim the ownership of a portion of the corporation’s assets and earnings. There are two types of stocks, namely common stocks that entitles the owner to elect at the stockholders meeting and collect dividends, and the preferred stock that does not have any voting but has a greater claim on possessions and earnings than common shares.
Real estate investing includes the acquisition, possession, administration, rental or auction of a property. Buying, selling, and leasing of a property offer considerable returns to investors. Most of the investors take credits from banks to procure real estate and then rent out or sell the possession to relish returns obtained at the time of a rise in the price of the property.
The most feasible investment decision that a common man can approach is investing in mutual funds. It is advantageous as it provides a chance to invest in a wide range of options like equities, bonds, debentures, commercial paper, and government securities at a reasonably low cost. A mutual fund accumulates money from investors and invests it on their behalf, and charges a small fee for handling the money. As an investor, you can either invest directly in a mutual fund or employ the services of a mutual fund advisor.
Hedge funds are the private investment vehicles that allow only the wealthy to invest. Hedge funds employ numerous strategies to earn active returns for their investors. A hedge fund can invest in options like land, real estate, stocks, derivatives, and currencies. A small fee is charged for maintenance and performance.
Venture capital is the capital that the investors provide to startup companies and small businesses that may have potential growth and yield profits in the long run. Investing in these is highly risky for the investors.
Collectibles like stamps, jewelry, artworks, etc. have significant value and are considered good and profitable assets to own.
Now that you are familiar with investments and the process and options available, you can find out the best and the most suitable investment option for yourself and begin investing for a better future.