The Basics of Investing
Investing is basically expending money with the ultimate objective of realizing material gain on top of the principal amount expended, usually in the form of profit, interest or capital appreciation. In the most basic terms, it is spending money to make more money.
May people confuse it for trading and gambling. It’s quite distinct from trading which is usually a short term venture with a purpose of making quick gains.
Again, it’s distinct from gambling which is highly risky and does not guarantee earnings whatsoever. Even though investing has its own risks, these risks are calculated.
A key point to note is that investing is not a get rich quick scheme. You have to put in work over time in order to effectively realize profits.
So, In Essence, How Does One Go About Investing?
There are various investment vehicles in which you can get a decent return on your investment. Investment vehicle in this context refers to the various ways in which you can invest.
They include: mutual funds, stocks bonds, real estate, exchange traded funds, retail stores, and basically any business that you may engage in that would result in income generation. This list is not exhaustive as there are many ways in which one can put their money into work and thereafter get a profit from the venture after meeting all costs.
But the fundamental point is that you are gaining value in the form of profit or additional income at the end of the venture. If you are not adding any value, then you are neither investing nor doing any business. You are doing something else, probably wasting time.
Learn Before Embarking on Any Investment
However, even with this basic knowledge, there’s a lot about investing that needs to be considered before embarking on any form of investment. First, you have to do a thorough analysis of the market, products, trends, and risks.
Investment is carried out when the benefits accrued from a certain venture exceed the costs. You only commit yourself and your money to an investment when there is a substantial expectation of profit.
If it proves to be hard in carrying out this analysis, you can always approach a financial adviser. With the case of tangible products especially in the retail sector, you only invest in such when you are sure that there’s a ready market for the products.
To illustrate: Let’s say you have an interest in beef farming. You put up a vast ranch and a large slaughterhouse, but the people in the surrounding region are vegetarians and do not partake of meat at all. Inevitably, your product will lack market.
You ought to have put it in a region that has residents who partake of meat. Therefore, investing entails a lot of analysis and due diligence before any commitment is made.
What Are The Types Of Investments Available?
There are two broad types of investments, namely:
- Fixed income investments. These are investments that give you a certain amount of income regularly in the form of interest. They include bonds and fixed deposits.
- Variable investments. These are investments that normally entail the setting up of a business to generate income or even owning property that generates income.
Well, this question is normally posed by many people. Why should you invest? Well, the reason as to why the rich keep on getting richer is because of investments. In contemporary time, it proves quite difficult to sustain yourself with employment.
Employment income is proving to be so minimal as compared to the ever growing needs and wants in life. In fact, many people are working so as to meet their basic necessities. This means that they have no savings which further implies that they are not creating wealth over time.
As time goes by, you approach retirement. What kind of life will you live when your only source of income was from your paycheck? This is where now investing comes handy. I guess now it’s clearer as to why you should invest.
The main purpose is to create wealth to secure your future and that of your family. Investing is done so as to achieve financial stability.