Andrea Wilkinson
What is investment and how to become an investor
The main purpose of investment is to increase capital and generate profits in the form of interest, dividends or growth in asset value. However, this area is associated with certain risks, such as loss of funds due to unsuccessful investments or unexpected events in the financial markets.
The advantages of investing include:
Potentially high returns Wide variety of investment objects Protection against inflation Creation of financial independence Obtaining tax benefits No limit on maximum earnings Passive income
Disadvantages of investment:
Possible loss of invested funds Uncertainty and instability of markets Difficulty in choosing assets Temporary restrictions in making a profit The need for constant monitoring and control High commissions and additional expenses Limitation of access to invested money Types of investments
All investments can be classified according to several criteria.
By investment period:
Short-term: investment period up to 1 year Medium-term: investment period from 1 to 5 years Long-term: investment period more than 5 years
By risk level:
Conservative: low level of risk, but also low profitability Moderately conservative investments: low level of risk and profitability Aggressive: high level of risk, but also high potential profitability
By industry:
In real estate and real estate assets In commodities and their derivatives In technology and innovation
By country and region, you can invest in bonds of a specific state or its subject, as well as in companies that are located in certain countries.
By control method:
Personal: the investor makes his own decisions and manages his investments Managed: the investor entrusts the management of his money to professionals such as investment funds or management companies.
Accroding The Commodity Tower shares are a security that gives ownership of an ownership interest in a joint stock company. When an investor buys shares, he becomes a shareholder and is entitled to a share of the entity's profits in the form of dividends. The stock may increase in value and the investor can sell it at a higher price, profiting from the difference in the purchase and sale price minus taxes and brokerage commissions.
Shares are one of the main financial instruments that allow investors to participate in the success of large companies or share losses with its owners. Therefore, such a security is considered quite risky. Stock prices fluctuate frequently and depend on many factors.
Bonds
Bonds are debt securities that are issued by companies, governments or municipalities to raise capital. By purchasing a bond, an investor is essentially making a loan to a company or country. In exchange, he receives a promise to return the original amount, called the face value of the bond, on a specified date, as well as to pay interest (coupon payments) at a certain rate.
Bonds are more stable and reliable investment instruments compared to stocks, since obligations to pay interest and return the face value are usually legally secured. The main risk for such securities is the issuer's decision to temporarily suspend coupon payments, debt restructuring or default of the issuing company.
Mutual funds
Mutual funds (mutual funds) are collective investment schemes in which investors' funds are pooled and invested in various assets such as shares, bonds, real estate and other financial instruments. Investors purchase shares of the fund, that is, shares of its assets.
Mutual funds are managed by professional management companies who decide on the distribution of the fund's assets between various assets in accordance with the fund's investment strategy. Profits from investments go to the investors' accounts depending on their shares, but the manager takes part of the funds in the form of commissions. Mutual funds allow you to diversify your investments, gain access to the securities market and other assets that may not be available to individual investors.
Precious metals
Precious metals are rare metals that have a high value and are widely used in jewelry and other industries, electronics, and investment purposes. These include gold, silver, platinum and palladium. The price of precious metals is determined by supply and demand on world markets, as well as the influence of economic and political factors. Precious metals are often used for investment as they are considered safe instruments during periods of financial crises and inflation. You can read more about the pros and cons of investing in gold here.
Currency
Currency is the official money of a country or region. It is used to make payments for goods and services, to store and accumulate wealth. Currency can be in the form of notes and coins, as well as digitally in bank accounts. But there is a problem with this in Russia - last year banks actively introduced fees for storing currency in accounts. In addition, the country has restrictions on how much cash you can withdraw from your account - from March 9, 2022, this amount cannot exceed 10 thousand dollars or euros.
National currencies of different countries are exchanged at a certain rate in relation to other monetary units. Quotes are determined on international currency markets and may fluctuate depending on the economic situation and political factors. Currency is often used as an investment asset. Participants buy and sell money on the market in order to profit from changes in exchange rates. However, investments in foreign currency are not always profitable.
Derivatives
Derivatives are financial contracts whose value depends on the price of an underlying asset or index. They get their name because their value is derived from the price of the underlying asset. Such instruments allow investors to protect themselves from risks associated with fluctuations in asset prices, as well as to speculate and profit from such changes.
The main example of derivative instruments for the average investor are
futures, which are contracts to buy or sell an asset in the future at a predetermined price. There are also options, swaps and forwards, but these types of investments are used mainly by large investment organizations or banks.
Derivatives allow investors to gain exposure to a variety of assets and markets. It is not necessary to own the assets themselves to make money from changes in their prices. However, this comes with high risks. If underlying asset prices move in an unpredictable direction, it will result in large financial losses.
by Andrea Wilkinson on 2024-01-21 06:36:18