Investments involve assets or items that are acquired to generate an income, return, or appreciation. This is an increase in the worth or value of the asset after a period. They are used as vehicles for creating wealth.
An investment involves some key factors – assets, time of maturity, appreciation. The asset can be money, idea, time, or effort. For instance, an individual may acquire an asset monetary or otherwise. The individual leaves it for a defined period. At the end of this period, the asset would have appreciated.
It can be sold for higher, or the proceeds collected along with the initial asset outlay. You may learn more by reading through this article.
How it Works
Investments typically work on the principle of the time value of money. It is understood that due to several factors, the value of a certain amount of money does not remain the same over time. It either increases or reduces.
Factors like trading with it, lending it out at interest and many more increases the worth of an asset over time. On the other hand, factors like inflation, bad economy, bad investment decisions, natural disasters, etc. can diminish its value.
This is to say that it is not all investments that increase in value. No one makes an investment decision to lose value, but different factors may come into play. What works today might not work tomorrow as in the case of investing in a company that goes bankrupt. Foreign exchange traders may also experience losses occasionally.
Investment is not limited to money alone but whatever it is, when left for a while, it appreciates most times. This can be a skill, real estate, knowledge, intellectual works, memorabilia, trading (buying and selling of goods), etc.
In essence, any activity that involves obtaining an asset in the hope of getting more income in the future is an investment. There is always a level of risk to every form of investment. This is because it is orientated towards a future income.
Depending on the type of investment, this risk can be low, medium, or high. The higher the level of risk, the greater the potential for returns.
Types of Investments
There are different classes of assets or investment types that you can get involved with. These are:
These are the type of assets that are suitable for the long term. An investor in this class is willing to leave their asset for as long as possible not minding market fluctuation. They believe that when they are ready, their asset’s value would have increased, and they can sell higher than they bought it.
They speculate and wait. When they are ready to sell, they look out for the time when there is a price increase and take advantage of that. Examples of these are shares and stocks. You may read more on it here https://marketbusinessnews.com/financial-glossary/growth-investing/.
Shares can help you grow your original investment over time. During this period, you will also get dividends. As long as the company remains strong, you can be guaranteed a reasonable return. The value of the shares fluctuates from day to day.
Shares are also referred to as equities. Although they tend to deliver high returns, they are one of the riskiest forms of investments.
You can hardly go wrong when you invest in property. This is because the value of real estate typically increases over time. It can rise considerably over a medium to an extended term. However, like every other form of investment, they are not without risks.
Property prices can fall but this is not usually the case. You may choose to invest in property directly by buying one or you invest via a property fund.
These are the type of investments that are primarily focused on generating income consistently. They typically involve lower risks when compared to growth investments. These are:
This is when you leave money in your bank accounts such as term deposits and high-interest accounts to accrue interest. They usually come with low returns and there is little chance of growing your capital. However, they can provide you with consistent income and are important in protecting a person’s wealth.
These types of investments pay an investor a fixed interest or dividend until it reaches maturity. When it reaches maturity, investors are paid their principal. It is often used by the government or companies to raise money.
Typically, these entities get money from investors and pay an interest till the investment matures. It usually comes in form of bonds. Fixed income payments are known beforehand, and they do not change. They are considered low-risk investments and come with lower returns.
This is a form of investment that does not solicit funds from the public. They are usually not traded or publicly listed companies. The capital typically comes from private high-network individuals as well as firms. They buy stakes in private entities or acquire a public entity and make it private.
As an investor, you can also look into investing in commodities such as precious metals, cash crops, oil, etc. These come with medium risks depending on market forces, but they generally offer medium to high returns.
How to Invest
There are a variety of ways you can invest as an individual. One way you may do so is through a 12J venture capital company or through financial planners. Venture capital companies will provide you with platforms where you can invest in a variety of assets. They help you manage the risks as much as possible by investing intelligently.
There are different forms of investment vehicles with each having its level of risk. To effectively manage this, you can work with investment managers. They will use their skills and experience to help you invest wisely.