The word Investment is very commonly used nowadays. But to understand it accurately you should know that Investment is an act or contract that obtains or increases enduring economic links with an existing institution or one that has to be formed.
Everyone knows that in todays era Investment is important. But, how do you know the correct Investment moves that could be right for your personal needs and goals.
The concept of Investment
A good Investment can be a well-coordinated suit and sports jacket for some or may be buying a piece of land or may mean anything to any person. But Investment is a term with several closely related meanings in finance and economics, related to saving or deferring consumption.
An asset is typically purchased, or similarly a deposit is made in a bank, in hopes of getting a future return or interest from it. Literally, the word Investment means the action of putting something in to somewhere else.
The most important exception for the purpose of investment is the acquisition of interest in land, which is governed by both statutory and customary law. The judiciary that comprises both the lower courts and the superior court.
The major difference within the use of the term investment in economics and finance is that economists are known usually as referring to a real Investment. Case in point a machine or a house but financial economists typically refer to a financial asset money that is put into a bank or the market which can then be new to buy a real asset.
The world of Investment can seem to be mind-boggling for a beginning investor and the amount of information required to be consumed can appear daunting. So how does one decide what kind of security to invest in?
Considering the point, would you choose stocks, bonds or some combination of investments? Or could you invest in mutual funds? How do you choose a particular fund, stock or bond? How do you assess the risk to your money? Well! Seems confusing right.
Undoubtedly, the most commonly new Investment service is buying and selling stocks. Since only licensed brokers are allowed to trade stocks, an individual who wants to buy or sell a stock is required to work through a broker.
Individual brokers work for financial services companies known as brokerage houses. In general for Investment purposes, there are two main types of brokerages, the most commonly known full service broker and the more recently developed discount broker.
Since prices of things are rising, doesn’t it make sense to enjoy now rather than save and consume later when we will obtain less for the same money?
Yes, if we are going to keep money under the carpet.
No, if we are going to do proper Investment and the rate of interest is higher than inflation rate. So if inflation is 5% and we obtain 8% return, the money successfully grows 3%. Hence a year later, we will enjoy more than what we would enjoy in most cases, if you or someone that understands and has expert knowledge spent now.
This is the concept of delayed gratification a type of Investment thought of for the future.
Usually taxes are the biggest expense. But you could also watch out for loads in mutual funds, any fee you pay to your Investment advisor, subscription to Investment magazines, demat your Investment account charges.
In most cases, if you or someone that understands and has expert knowledge are investing one lakh a year and its most important to understand if you are paying 5000 as a fee to your advisor and its much more important to understand if you are successfully paying 5% entry load, your chances of this portfolio beating a well diversified AAP, compliant portfolio over the long term is almost nil.
What could you prefer: Rs 10,000 right now or Rs 10,000 five years from now?
Common sense tells us that we could take Rs 10,000 today because we know that there is a sure time value of money. The Rs 10,000 received now provides us with a better chance to put it to work immediately and earn a sure return on it.
A single rupee today is worth more than a single rupee Investment a few years down the line. Given this, households that have surplus funds highlight within the form of savings want to have Investment in those funds so that the value of the funds over the years does not go down.
There are various forms of Investment at the availability of people. These include real assets like a house, an auto, a television, or financial assets like stocks in companies, bonds, units of funds, et cetera.
Traditionally, term deposits in banks, post office savings schemes, bonds and common stocks are the most accessible forms of Investment available to the investors. Term deposits, post office savings schemes and bonds give a fixed return over a period of time.
Investors would usually want their Investment in an asset, which gives them maximum return on their Investment. However, life is not as simple as that. Different assets come with different risk profiles. So choose correctly.