What are investments?
The essence of investments – voluntary investment of one’s own funds with the aim of generating income. Most often, free cash is used for investing capital, while the investor assumes the risk of loss if the investment object turns out to be unsuccessful.
What types of investments exist?
Investments are divided into two types — real and financial:
- Real investments are associated with real enterprises — purchasing equipment, building new facilities, expanding production.
- Financial investments — this is the investment of money in various investment instruments with the aim of generating income. Financial investments include investments in various securities, bank deposits, real estate, business, etc. Some Forex market instruments, such as PAMM accounts, also fall under financial investments.
What characterizes investments?
Investments are characterized by four main parameters:
- Investment term;
- Investment volume;
- Investment return;
- Investment risk.
The last two points usually depend on each other. This dependency is, as a rule, directly proportional. That is, the higher the investment return, the higher the risk of losing all your money. For example, a bank deposit is a low-return and low-risk investment, while investments in stocks or PAMM on Forex are the opposite.
Investment size depends on the investment instrument. For example, a bank deposit does not require significant funds, whereas investing in real estate requires substantial capital.
Investment terms can also vary. To compare the final return of different investments, the concept of annual percentage yield is used.
What methods, ways, and investment instruments exist?
By definition, you need to invest in something. There are a great many options for where to invest your capital. Among the most common instruments, the following should be noted:
- stocks;
- bonds;
- investment funds;
- real estate;
- own business.
How does investing differ from speculation?
Investment is an investment from which income will be received for many years. Operations lasting more than a year, with economic efficiency present in subsequent years, are considered investments. Short-term investments that pay off quickly are called speculations. There are many types of profitable investments, but they are not considered investments.
