In finance, investment means buying securities or other monetary or paper assets, for example equity investment or real estate investment, or bonds or postage stamps. These types of investments may provide future cash flows but it may increase or decrease in value.
Process of investment
What is mean by investment? When you make investment, you put your money into something (bond, share, mutual funds and property) in order to achieve more what you invested. You can invest your brain in your work, or you can invest your money or time for noble cause. Whatever you do, you always expect best results. Same way, you invest your savings in a stock, bond, or mutual fund to increase your prosperity. Investment of money indicates putting that money into some form of "security" The word security denotes anything secured by some assets. Stocks, bonds, mutual funds, certificates of deposit are types of securities.
If you invest a dollar, its value will flourish over time through the miracle of compounding. The more money you save and invest today, the more you'll have in the future. Wealth created more or less magically through patience, time, and the power of compounding. Compounding is so amazing that even at relatively low returns you can multiply your money over long periods of time.
You must answer some questions to yourself before you start your investment journey. What are your financial goals? Is this money for retirement or a down payment on a house or for child's higher education? How much money can you allot to a regular investing plan? After you have an idea of how much money and time you'll need to get there, you can start to think about what investment types and style might be right for you. Investment Techniques
Before you start investing, you should decide your investment technique/style. There are two major variables in figuring out your investment style - your risk tolerance and the amount of time you can dedicate to investing.
Risk. How comfortable will you be if you invest in something in which the price fluctuates every day? There are various degrees of risk across the investment spectrum, from government bonds, which are considered risk-free as they are guaranteed by the government. For stock investing, there is no insurance that that every investment will make you money, but if you buy good businesses and hold for the long term, the odds are in your favor. Just keep in mind that the safest road isn't always the best one. Once you see the kind of returns you can generate over time, you'll come to realize that it really doesn't matter if your stock drops or rises over the course of a few hours or days or weeks or even months.
Time: Time is key factor of your investing. It raised the questions like: How much time do you want to spend on investing? How active do you want to be in the management of your money? When do you need the money? Whether you need the money next week or in a fifty years will dramatically affect what investment vehicle you decide to use.
Types of investments: There are many different ways you can go for investment. This includes putting money into stocks, bonds, mutual funds, real estate, or starting your own business. Sometimes people refer to these options as "investment vehicles," which is just another way of saying "a way to invest." The point is that no matter the method you choose to invest, the goal is always to put your money to work so it should earns an additional profit for you.
Bonds: Grouped under the general category called "fixed-income" securities; the term "bond" is commonly used to refer to any of these securities founded on debt. When you purchase a bond, you are lending out your money to a company or government. In return, they agree to give you interest on your money and eventually pay you back the amount you lent out. If you are buying bonds from a stable government, your investment is almost guaranteed. The safety and stability, however, come at a cost. Because there is little risk, there is little potential return. As a result, the rate of return on bonds is generally lower than other securities.
Stocks: When you purchase stocks or equities, you become a part owner of the business. This entitles you to vote at the shareholder's meeting and allows you to receive any profits that the company allocates to its owners--these profits are referred to as dividends. While bonds provide a steady stream of income, stocks are volatile. That is, they fluctuate in value on a daily basis. When you buy a stock, you aren't guaranteed anything. Many stocks don't even pay dividends, making you any money only by increasing in value and going up in price--which might not happen.
Compared to bonds, stocks provide relatively high potential returns. Of course, there is a risk of losing some or all of your investment.
Mutual Funds: A mutual fund is a collection of stocks and bonds. When you buy a mutual fund, you are pooling your money with a number of other investors, which in turn enables you to pay a professional manager to select specific securities for you. Mutual funds are all set up with a specific strategy in mind, and their distinct focus can be nearly anything: large stocks, small stocks, bonds from governments, bonds from companies, and so on. The primary advantage of a mutual fund is that you can invest your money without wastage of the time or the experience in choosing investments. Actually, there are some aspects about mutual funds that you should be aware of it.
Forex, Gold, Real Estate & etc: There are two basic securities: equity and debt, known as stocks and bonds. Many investments fall into one of these two categories. They are generally high-risk/high-reward securities that are much more speculative than plain old stocks and bonds with the opportunity for big profits, but they require some specialized knowledge.
Cash investment: It is least volatile asset and historically has produced the lowest returns on the investment. Cash investments are generally the best investments for short-term periods. We don't invest in cash to make a lot of money; we invest in cash because it's liquid and secure. We know how much we can get, and when we can get it. Investors with very low tolerance to market fluctuations will usually have at least some of their funds in cash so they can sleep peacefully at night. The ability and accessibility of assets to be readily converted into cash makes them the best tools for short-term needs.
Bank &saving account, money market-mutual funds, Certificate of Deposits, Treasury Bills, Savings bonds, fixed annuities and Cash value of life Insurance policies are the types of cash investments.
Strong Financial Portflio
Money should be invested across different types of investment products to create a strong financial portfolio. There are different types of investment. Each brings special reward and returns attached with them, for example flexibility, liquidity, minimum deposit, loan amount, insurance coverage or other special incentives. You should know how much risk you can deal with based on your financial situation and take into consideration aspects like Term of the Deposit, Flexibility, Liquidity factors, Insurance coverage and also how easily you can withdraw the money in case of an emergency. Each type of investment will have its own strong point. Balance these different types of investment will create your prosperous future.