Investing for beginners from scratch. Investment Strategies

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

Investments and finances in a general sense are considered as means used to obtain a certain positive result. It can be monetary, defensive, intellectual, social and so on. Such an interpretation of these concepts is beyond the scope of economic consideration. From this point of view, investments and finance act as a tool for obtaining a large amount of money, generating income or increasing capital. They can also be used for both.

The essence of investing

The above definitions interpret this concept as a means of increasing one's own capital and a method of achieving non-economic goals. For example, the state, investing funds from the budget in the development of astrophysics, does not expect to make a profit. However, the injection of capital into this area allows for important research work. ATIn the narrow sense, investment involves the increment of invested capital. The general definition is given in the Federal Law. In accordance with its provisions, investments are considered as securities, cash, other property, real rights that have value. They are invested in business or other activities to generate income or achieve another beneficial effect. Capital investments are treated as investments in fixed assets. These include, among other things, the costs of re-equipment, construction and reconstruction of existing enterprises, the costs of purchasing equipment, machinery, inventory, tools, as well as design and invention activities, etc. Investments are considered in a broader sense than capital investments, and in a narrower sense than costs. Costs, for example, can be one-time and current. The former can be attributed to investments.

Implementation features

The modern economic system provides for various types of investment. The contribution of funds is carried out in certain programs, the implementation of which makes it possible to achieve the set goals. They are presented as a set of actions and measures that do not contradict the norms of the law. Investment in projects is carried out over a certain period. In the Federal Law mentioned above, the concept of a program is presented as a justification for the economic feasibility, timing and volume of capital investments. This category includes the legislation and documentation developed in accordance with applicable standards, andapproved according to existing standards and in the prescribed manner. An investment project is, among other things, a description of practical investment measures (business plan). The law also introduces an additional concept. In particular, the provisions provide for such a definition as "priority project". It is considered as a set of measures with a total volume of capital investments that meets the established requirements and is included in the list approved by the Government.

Subjects

Practical implementation - the beginning of investment - is unthinkable without the implementation of certain individual or collective activities. Subjects and objects are integral elements of this work. The former include organizations and citizens that carry out purposeful activities in the process of solving the problems set in investment projects. Subjects are:

• Contractors (performers).
• Customers.
• Investors.
• Object Users.
• Other members.

Legislation provides an opportunity for one entity to combine the functions of two or more project participants, unless otherwise established by a state contract or agreement.

Objects

They are various property created by organizations and enterprises of the non-productive and industrial sphere, certificates, bonds, shares and other securities, scientific and technical products, property and other rights (including intellectualproperty), cash deposits. Attachment objects can also be distinguished:

• Geological exploration.
• Communication and transport objects.
• Housing construction.
• Agricultural facilities.
• Structures of the social sphere (educational, medical, cultural and educational institutions), etc.

Classification

Investment strategies are formed according to different criteria:

• For attachment objects.
• Terms of investment.
• Form of ownership.
• Territorial orientation.
• Sources of funds.
• Economic spheres.
• Industry-focused.
• Opportunities to participate in governance and so on.

The classification of investment activity by objects is the main one. In accordance with this feature, financial and real investments are distinguished. The latter, in turn, are divided into intangible and tangible, the latter - into portfolio, direct and others.

Real investments

Constructions, equipment, machinery, buildings, and so on serve as objects of material investment. Intangible investments are aimed at acquiring licenses, patents, implementing programs for advanced training and retraining of personnel, and paying for research activities. Within the framework of statistical practice, real investments are called contributions to non-financial assets. Their accounting is carried out according to the IMF Methodology.

Cash investments

Financial investments are presented as investments in bonds, stocks, certificates and other securities, as well as bank accounts. As mentioned above, they are divided into portfolio, real and other deposits. The former include investments in JSC shares to receive dividends and rights to participate in management activities. They are carried out by organizations and individuals who fully own the enterprise or control at least 10% of the share (authorized) capital or securities. Portfolio refers to investments in different types of shares that belong to different issuers, to increase the likelihood of earning income. This category includes the purchase of bonds, shares, bills and other debt securities. Their share is less than 10% in the share (authorized) capital. Those investments that do not fall into the above categories are indicated as "other". Among them, for example, trade loans, government loans from foreign countries under guarantees and others.

Property form

According to this criterion, as a rule, foreign, private, state and mixed investments are distinguished. For novice investors, relevant methodological materials are developed, which provide an extended classification. In particular, in statistical practice, municipal contributions, participation in consumer cooperatives, religious and public organizations are singled out. Mixed investments are classified into joint domestic and Russian-foreign investments.

Other criteria

Statistical practice uses classification according to directions of use. For example, investments in fixed capital are divided by forms of ownership, economic sectors, and so on. Depending on the regional (territorial) feature, domestic investment should be distinguished. For novice subjects of the activity in question, they often act as the simplest and most effective tool for making a profit. Investments in the domestic economy are divided, in turn, by regions. In addition, there is also external investment. For novice investors, this option can also be a very promising way to increase capital. Depending on the economic sphere, production and non-production types of activity are distinguished.

Risk level

There are different classifications on this basis. Books on investing distinguish, for example, such categories as conservative, aggressive and moderate investments. The former are characterized by a low level of risk and high liquidity. The last category is characterized by moderate values of the probability of loss. Aggressive investments are distinguished by high profitability and degree of risk, low liquidity. In accordance with another classification, there are high-, medium-, low- and non-profitable investments.

How to start investing?

You won't be able to make money from investments in the field of investments. To earn income, you must have certain funds. Before you start investing, you need to check the state of finances. In modernconditions, the cost of living is growing quite rapidly, and mandatory payments are increasing. In this regard, the funds that were planned to be invested somewhere may not be enough.

Basic Principles

Knowing about them is necessary to invest correctly. Where to begin? What program to invest in? How much money do you need to make the first investment? For novice investors, these questions are the most relevant. To navigate the system, you need to know the basic terms and understand them correctly. In this case, the decisions made will bring the desired effect. It is necessary to understand the difference between a deposit, mutual funds, bonds, shares. It is advisable to study a number of economic theories. For example, it is useful to explore issues of portfolio optimization, market efficiency, diversification. All useful information is contained in books on investing. These publications explain the basic terms that you need to know, provide various investment schemes, examples. In addition, the largest domestic brokers provide an opportunity to attend online investment courses. Seminars on this activity are also quite popular.

Target

Any guide to investing contains this item. Before investing, you need to determine the purpose of this operation. In general, all investors seek income. However, the resulting profit will be used in different ways. The purpose of investing will depend on age, outlook, plans for life, work experience,specifics of professional activity and other circumstances.

Determining acceptable risk

Immediately before making an investment, it should be established what level of probability of loss the subject can accept. In this case, it will depend more on age. As a rule, young people are ready to take risks, invest, lose, invest again. The older generation, on the contrary, strives for a stable income. Existing investment projects involve different levels of risk. Of these, you can choose the most suitable.

Own style

He is chosen according to his attitude to risk. Investors can be conservative or aggressive. In the first case, about 70-75% of savings are kept by investors in low-risk assets (government bonds, for example). The most aggressive investors typically invest 80-100% of their capital in stocks.

Deposit value

The higher the payment for the purchase of assets, the less income you can get from the investment. As a rule, the passive method assumes the lowest costs, and trading - the maximum. In the stock market, a commission is deducted for transactions. Brokers get it. Beginning investors would probably be wise to turn to cheaper agents or low rates. But in this case, the service is likely to be limited. In this case, to perform any non-standard action, an additional payment will be required. If the investment is made in mutual funds, experts recommend carefully studying the sectionscontracts relating to markups and discounts, as well as commissions for successful investment.

Search agent

This stage is considered the most important for a novice investor. When choosing a management company or broker, you need to pay attention to:

1. Reputation.
2. Progress over an extended period.
3. Correspondence of tariff plans to the chosen investment style.

It is advisable to view the ratings of brokerage companies, read reviews, consult with experts.

Select attachment object

Experts recommend dividing the available capital into three parts:

1. For bonds.
2. For stocks.
3. Cash balance.

Funds that will be invested in stocks and bonds should be split into several more parts. They can be invested in different securities. Cash may be required to pay the broker and to make any purchases in the coming periods. The size of the shares into which the funds will be divided depends on the style of investment. Similarly, you can split the capital for investment in mutual funds, deposits.

Controlling emotions

Often, income generation is limited by fear or greed. Any investment portfolio is subject to short-term fluctuations. In some cases, they can be quite noticeable. In such cases, you should not panic or be too happy about sudden success. If a feeling of anxiety for one's own funds begins to bringinconvenience, it is advisable to revise it so that it is more in line with the style and goals of investing.

Capital review

At the initial stages of investment, subjects acquire bonds, shares or shares according to a certain plan, distributing the likely risks and the expected profit. However, over time, it may turn out that the value of one part of the assets has risen sharply, while the other has fallen. This situation will change the ratio of securities initially included in the portfolio. And this, in turn, violates the plans of the investor. In such cases, the portfolio is rebalanced. This procedure consists in selling a part of assets that have risen in price and buying a part of assets that have fallen in price.