Nowadays, a lot of people still confuse financial investments with their accumulation or saving. And this despite the characteristics, have critical differences between these concepts. You can save money and save it somewhere for a "rainy day." In the bank, under the mattress, it does not matter where, because one day inflation will do its job, and this money will lose its original value or completely depreciate. Investments allow not only not to lose money, but also to also make money.
Investments - the investment of financial resources in various projects for future benefits.
The essence of investing is extremely simple. A person has a certain amount of money (or some valuable assets), he can entrust it to a financial company for a certain period of time, which will invest it in some project, sometimes even of his choice. When the deadline expires, the funds will be returned to the owner along with the interest paid on the use of this invested money. Of course, there are risks here, therefore the choice of the company to which the funds will be given and the project in which it will invest them is especially critical.
Sources for investment
It seems to many that it is necessary to be a very wealthy person in order to invest in something, but this point of view is wrong. In fact, a small amount is enough to become an investor. Of course, in this case, the percentage of the investment will be small, but, nevertheless, it’s a start. Sources for investment can be very different:
• The planned part of the income is the best source of finance for the investment. If you make a part of your own salary (for example) in advance as part of the budget plan and monthly invest it in the investment of something.
• Loans - if there are loans in banks, at high interest rates. It would be wise to repay the loan and direct the released finances to investments.
• Free salary money - it often happens that a certain part of the money remains from the salary, which can be spent on something unnecessary, but pleasant. And you can use this money to invest.
• Tax deductions - primarily - social. This also includes property deductions.
• Premium. Similarly with bonuses, and with their counterparts.
• Money for unnecessary spending. The most damaging source for investment. It is estimated that people like to spend considerable money on something that, in principle, is not a necessity. Small gifts for yourself, unscheduled entertainments - this eats up a considerable part of the budget, both from salary funds and from savings. It will be more useful to invest this money in investments.
Types of investments
There are many types of investments that are grouped by various factors. But in general, all types are divided into two conditional groups:
• Real investments - money is invested in intangible assets, fixed capital. A popular type of investment in various enterprises, since the profit usually goes to their own development.
• Financial investments - funds are invested in securities of all kinds. A common type of investment among individuals, due to reduced risks.
It is also customary to divide investments depending on the sources of income. This is most typical for real investments, when enterprises need additional investment funds to avoid bankruptcy.
• Public investment - receiving funds from government agencies that go towards the development of promising types of industries or projects.
• Foreign investments - as a rule, such investments are used to stimulate business development abroad.
• Private investment is a fairly popular type of investment when it comes to issuing bonds or shares, entering a new company on the market or presenting a project.
How to reduce risks
With investments, the concept of risk goes beyond the mere loss of money. By investing in something, the investor hopes to get a certain result. And even the discrepancy between the final result and the desired one can already be considered an unsuccessful investment. As a rule, risks are proportional to the potential return on investment. This is especially true for investing in securities.
Since there are several types of investments, depending on which one, risks are usually divided into several types:
• Liquidity risk. In case of loss of interest in the project or asset, the price of its purchase / development will be many times higher than its market value.
• Risk of inflation. Market conditions can lead to low purchasing power. This type of risk is especially relevant when it comes to investing in goods. Also, this type of risk is characteristic for lowering liquidity.
• Currency risk. With devaluation, the value of foreign assets decreases in relation to the national currency. The risk is relevant if the investment is based on foreign currency.
• Legal risk. Changes in legal rules inevitably affect investment and the market itself.
• Risk of force majeure. As a rule, this includes non-economic risk factors, such as political situations, natural and technological disasters, etc.
These are not the only possible risks, but the largest and most common. You can usually adapt to risks and learn to avoid them, but there are several ways to reduce them.
• Invest in free money only, without loans.
• Invest in the assets of several companies at once, diversification.
• Invest on a long-term basis, but with smaller amounts. It is advisable to choose stable options, albeit with a small profitability. There are many projects that promise high interest in short terms, but such projects are at increased risk.
• Hedging in securities.
• Carefully check the list of all projects where you want to invest, read reviews about them, weigh the pros and cons. Considering each individual project, it is necessary to study its parameters such as: the minimum initial amount in investment, the probability of income and its size, potential levels of profitability and liquidity.
• Accumulate profit from the project until the investment portfolio reaches full profitability.
Options for investment
Of course, one of the most important questions of a potential investor: where to invest? There are many investment options, and every year there are more. Structuring them is not so simple, but a certain selection of the main options can be done.
• Currency. It is recommended to invest in foreign currency so as not to lose money due to inflation. The main thing here is to monitor the exchange rate, which, as you know, is ever changing.
• The property. Fairly favorable source for investment. But the process itself can be lengthy (this negatively affects liquidity), plus - the risk of force majeure is not excluded. This is not counting such unavoidable things as taxes or utilities. But there are advantages:
1. The ability to lease real estate and make a profit from it.
2. The real estate market itself is quite stable.
3. The transformation of the property into a specialized institution.
4. Resale of real estate at a price higher than the purchase price.
• Gold and precious metals. A very popular option for investment, especially for long periods. The market of valuable metals is relatively protected by fluctuations in the economy, and most importantly - valuable metals are universal, they are in demand in any country in the world. But there is an additional risk - the need for additional protection against theft.
• Securities. It all depends on whether you are buying stocks or bonds. Stocks give a chance to earn on inflation and price volatility. Bonds are similar to a deposit, which implies a high profit after a long period of time.
• Valuable goods or antiques. This asset is recommended for true professionals - those who can correctly assess its investment potential.
• Own business. It all depends directly on you. The risk is obvious - you can go bankrupt.
• The Internet. Quite a popular option recently. Its convenience is the simplicity of the entry threshold; you only need a computer or even a smartphone connected to the Internet. There are many options for investing via the Internet:
1. Trade in cryptocurrencies.
2. Forex trading.
3. Trading binary options.
4. Investing in online sales and stores.
5. PAMM accounts.
6. Investments in MFIs (microfinance organizations).
As the saying goes, the choice is yours. You only need to be careful in choosing and remember the risks.