Investing is the act or process of acquiring money for the purpose of making profits from it. In simple terms, investing means owning an item or an asset with the intention of making money out of the investment, either in the present or in the future, for the purpose of increasing the value of that particular asset. For example, if you are going to make an investment in a business, your main objective is not only to make money today but also to increase its value in the future. Therefore, when we say that you are making profit from your investment, it simply means that you will earn more money from it in the future as compared to what you would have earned had you not made the investment.
There are three basic types of investments: equities, commodities and stocks. Among these, stocks and bonds are considered to be the most common forms of investment today. Stocks or bonds represent the totality of your investment portfolio and these are sold on the stock exchange either through a broker or directly to investors. The cost of buying the stock or the bond is higher than the cost of purchasing the assets themselves at the market value; hence the saying, “You get what you pay for” applies to stocks and bonds.
Stocks and bonds can have a direct effect on your financial well-being. However, the stock market and the bond market are very different from each other in terms of their risks. For instance, in case of the stock market, there is a very high risk of loss to the investors unless the company itself is very well established and profitable. However, in the case of bonds, the risk level is much less because in the bond market, there is very less direct relationship between the issuer and the borrower (Bonds are not traded on the stock market). So, in that case, there is more or less guarantee for investors regarding the repayment of principal and interest.
An investment strategy always leads to some form of profit creation. And, the profit potential of any particular investment depends on the type of asset that is invested in. Broadly speaking, any asset can be used as a source of investment and generating income, but it depends entirely on the strategy adopted for generating income out of that particular asset. If you want to make money by investing in certain asset classes, then you should adopt a strategy accordingly.
Common strategies of generating higher income out of investment include the following: One such way of generating higher income out of any given asset is through the purchase of those assets and selling them later. An example of such an investment strategy is the purchase of a property and holding the property until its resale value increases. A similar strategy could be adopted by you if you want to make money by investing in certain financial instruments. You can generate a higher income by trading shares in certain financial instruments like bonds or stocks in the stock exchange. And trading in stock exchanges is one of the best ways to earn by investing in property, shares or commodities in an international scale.
Another strategy of generating higher income out of investments is through borrowing funds from banks or other financial institutions. This may seem like a good option but you should keep certain things in mind before you opt for borrowing funds. First of all, you should decide clearly what you intend to do with these funds after borrowing them. If your main intention is to use them to meet your financial goals through investments, then borrowing funds from banks is not a good idea, as the interest rate offered by banks for such loans is very high.