To invest in a business that has an inherent potential for profit is called Investment. An investment can be in any form. One can invest in stocks, shares, bonds, insurance and mortgage etc. One can also invest in property, gold, real estate etc. The key feature that differentiates investments from each other is the potential for gain.
To invest properly is to put money into an asset with the hope of a return/profit in the near future. Simply put, to invest implies having an asset or an object with the objective of generating income or an increase in the overall value of the asset, which is generally an increase in your net worth over a period of time or a lifetime. So it’s not just an investment in terms of the assets or goods but also in terms of your investment thesis or philosophy. So let’s take a look at some key takeaways from this.
One of the key takeaways is that you should be investing in equities, as equities are the most liquid and have the highest potential for growth. You should never invest in companies that you know nothing about, as your ignorance could cost you dearly. There are some exceptions when you can put money in a well run company that you are aware of such as an emerging market, an old world brand or technology or a company with great management. You should avoid putting money in things that are not correlated to the economy and have no obvious prospects for profit generation. Another important concept that you should grasp is that you should avoid all forms of investment that are speculative and have high chances for loss.
This does not mean that you should never invest in any form but be careful where you put your money. One very good example is buying shares in an active fund that is not correlated to the stock market. Even if you are putting your money in a fund that does have a high risk factor, you should still diversify your portfolio so that you minimize your risks. You should also make sure that you are investing your money in a company that has room for you to grow. You should never put all your eggs in one basket, as the unexpected could hit hard.
Along with this concept you should also understand the different types of investments that you can make. Different types of assets come at different risk factors and you should consider these before deciding what type of investment to choose. For example, you may decide to invest in equities, bonds, commodities and so on. Understanding the different types of assets will help you choose an investment strategy that suits your temperament and risk tolerance.
In terms of returns, remember that investing in equities will provide you with a relatively stable income while investing in equities will give you a higher return but a lower risk. If you want to generate income from investing in stocks, bonds or commodities then you should diversify and go after the top companies. There are a lot of opportunities in the financial markets and as long as you do your research, you will surely find a profitable opportunity. However, there is a downside to investing in stocks as well. If the market takes a beating, you may not be able to sell your stocks at a loss because the company’s value may have decreased.