Investing - what is it? Object and process of investment

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

For all people, the question has always been important: "How to save and increase money?". If a person wants to earn the maximum in order to secure a future for himself and his children, then it is necessary to look for an answer to this question. And then one day such a searching person stumbles upon the word “investment”. It is this method that promises to increase your cash savings. But what to do with it? What is investing?

Tools

Investing is the investment of funds for profit. There are quite a few different tools available to make this possible. What it is? Tools for such a process as investing funds are all where you can invest money in order to generate income. Any other investment (without the purpose of generating income) is patronage or charity. Investing is any type of investment that provides an opportunity to increase the invested amount in the near (or long-term - it all depends on the strategy and needs of the individualinvestor) perspective. It becomes clear that the tools for such a process can be very different - from banal speculation in the purchase / sale to financial participation in large projects for the construction or development of oil fields, which involve significant dividends, subject to successful implementation. Naturally, in view of such a wide variety, there is a certain classification.

Types of attachments

1) Real investment is an investment in production (industry, construction, agriculture). Also, some intangible assets (copyrights, patents) that can be used for production needs fall under this type.

2) Intellectual investment is investment in retraining, education, science and so on. Also, some intangible assets (copyrights, patents) that can be used for intellectual needs fall under this type.

3) Financial investment is the purchase of securities, investing funds on a deposit, and so on.

Most common investment instruments

In the economic literature, you can find such ways of investing:

1) deposit (bank deposit);

2) pension savings and insurance programs;

3) securities (bonds, stocks, options, vouchers, and so on);

4) structured banking products;

5) Mutual funds (mutual funds);

6) promotions of variousexchange-traded funds;

7) investing in hedge funds;

8) investment in precious metals (silver, gold, platinum);

9) buying or building real estate;

10) alternative types of investment - antiques, art, collecting, precious stones and more.

It is also necessary to understand that the "object of investment" is all of the above (or something specific from the list). With the spread of the Internet, passive income has become available to the masses. Internet investing is the ability to use the World Wide Web to make transactions that are associated with all instruments through Internet banking (currency exchange, investing money on a deposit, buying units or shares, and so on). If you have a large start-up capital, you can start developing an Internet business. It should be clarified that of all of the above, real investing is the type of investment that requires the maximum amount of funds and often huge capital injections, which is why it is much less accessible.

Risks

Investing is always a risk. Any instrument is characterized primarily by this indicator, as well as by its profitability. There are three types of attachments:

- low risk;

- medium risk;

- high risk.

There is a relationship between the degree of risk and profitability: the higher the probable profit, the riskier the investment. It is the ratio of these two criteria that determines the investment strategy. It is worth considering all typesmore.

Low risk

Instruments with low risks give virtually guaranteed income. Interest is conditionally comparable to the yield on bank deposits. This group includes savings and insurance programs, government bonds and bills. It can be seen that the profitability of these instruments is practically guaranteed, and all invested capital can be fully returned back to the investor. The only risk is the refusal of the state or the insurance company to fulfill their obligations.

Mid-Risk

This category includes:

- deposits in commercial banks;

- bills and bonds of commercial banks;

- shares of various funds (bond, real estate funds);

- rental property.

Instruments in this group carry certain risks (up to fifty percent), and in some cases may even reach the complete loss of all capital. Usually such huge economic stresses provoke global crises.

High risk

Here the profitability is actually unlimited and can reach amazing percentages. This type includes stocks, own business, trading in commodities and currencies, shares of index funds and equity funds. This kind of investment is always a serious risk, but also a large profit. In large portfolios, the share of such instruments usually does not exceed 1-15%. A high-risk investment object is a casino where luck often plays verya big role, since mathematical calculations depend too much on the mass of probabilities.

Investment process

The investment process is a set of directional movements of different financial flows, different levels and forms. There are a number of conditions for this: the availability of sufficient resource potential capable of ensuring progress on the required scale of economic entities. In this mechanism, the object of investment is what investment resources are transformed into. Such a process is a set of actions aimed at attracting the savings of individuals and legal entities for their use through the transformation of working and fixed capital to obtain a certain profit. Basically, only two parties are involved in this: the applicant enterprise and the investor directly.

Investment process management

To do this, it is necessary to monitor the economic climate of a particular region and enterprises; assess the investment climate of economic sectors and industries; develop strategies for investment activities of enterprises; carry out economic and financial regulation of the market and stock exchanges; evaluate the impact of the investment flow on the enterprise. Real investment is the most time-consuming process, therefore, there are such stages and points of the investment process as:

- motivation for investing;

- availability of a development program and justification of goals;

- developmentstrategy and investment plan;

- stable financial security;

- insurance;

- providing the real investment sector with all the necessary technical and material resources;

-regulation and monitoring of the investment process;

-assessment of the results and further planning.

Financial asset

Investing is a combination of different types of investments. Financial assets are one of the most accessible today. A bank deposit is a savings and investment activity, and also has minimal risk. However, inflation has an extremely negative effect on such investments. And this means that a bank deposit is not even an average-income instrument, and its whole essence comes down to just saving money. The remaining financial assets are not guaranteed, so their valuation is much more complex and complex, as it requires a fairly deep knowledge in a particular area.

Tangible assets

"Material" investment of capital is investments in precious metals and other types. Naturally, the yield here is significantly higher than that of deposits. Over the past decades, gold has both fallen and grown significantly in price, but its growth has been very unstable. You can invest in precious metals through futures contracts, metal accounts, and more. Real estate can also be included here.

Foreign exchange and stock market

The main advantages of suchtypes of investment are the ability to make investments in the presence of minimum amounts, the possibility of virtually instant deposit and withdrawal of funds. The main disadvantage can be called the highest risk of losing part or all of the invested funds. This is especially true of the Forex market, which is not regulated at the legislative level, and brokers prefer to register exclusively offshore.