What is investing? 10 Types and how it works

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let us start by answering the question What is Investing? It is the action of devoting a certain amount of money or assets with the intention of seeing it increase in worth by yielding income or capital gain.

People dedicate money on different projects in so many ways and when they do so the primary motive is to see it increase in value either for the short period or a period lasting into the future.

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A brief analysis of what is investing/investment

Investing and investment are two synonymous words, which absorb the same meaning but may be confusing to beginners. They both points towards one direction but the difference is; investment is an already established plan while investing is an ongoing plan.

Before the present era, there have been investments all along. There seems to be no defined history of investment because originally, the foundations are still there. However, tracing the root of it, research has it that, the age-lived investment markets still live to the present age.

These companies still record the largest stock market in the world for instance the London stock exchange founded in 1801. The difference between the now and then is the introduction of technology which has made things more easy, especially for investors.

Types of Investing

Sometimes, when you decide to make an investment you begin to wonder what type you should kick-start. It can be intimidating especially if you are just starting out, you might be on the guide to avoid making mistakes. If this is the case, you might look for an investment advisor or you can choose from the best types below.

Bonds

In the investment world, Bonds represent securities. Most companies generate funds by selling them.  Here, the investor lends the company or government a certain amount of money specifying a particular period, while the company pays back an interest (coupon) in return.

Bonds have the advantage of safety which guarantees less risk but it does not mean you cannot lose money as it sometimes comes with low returns.

Once investors are able to allow their bonds to reach maturity, they will get their entire principal as well as their full interest. For new investors, bonds can be a good option as it yields steady income before maturity.

Shares/Stocks

In shares, an investor can purchase a unit of shares and partake in the company’s ownership as a shareholder. In return, the company will pay an interest known as a dividend to stockholders usually on a quarterly or monthly basis.

As agreed between the company’s financers and the shareholders, the dividends may be paid in cash or reinvested by buying more shares,

Annuities

An investor can partake in an annuity through an insurance company it is a long-time investment that generates steady income in retirement. It works between an investor and an insurance company. while the investor makes a certain payment presently and gets back a huge income in the future.

Mutual fund

This is another type of investment organized by professional fund managers. In this type, various investors’ money are collected and pooled together to purchase securities like bonds, and stocks.

In return, it pays out dividends to investors in the various ways the assets are collected and they can reinvest their dividends. Mutual fund bears less risk and offers easy investment diversification.

Exchange-traded fund

The exchange-traded fund (ETF) operates synonymously with the mutual fund, and experts manage it. It is traded on the stock exchange as with a regular fund. When those companies pay their dividend, the expert collects them and disburses them to the investors and this can be annualy or quarter.

Retirement plan

This is an investment strategy, which helps to take care of your retirement days. It is a situation where you save some part of your earnings; let us say your monthly salary or the proceeds of your business.

This plan enables you to invest your money all through your working days although, depending on the periods you specify. You can choose from the available plans, and then on retirement, it becomes available to you on maturity in a lump sum.  

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Cryptocurrency

This is an online digital asset introduced newly into the investment world and fast gaining recognition in the digital space. Investors purchase it by exchanging real currency mostly in dollars for a token. This investing works between an investor and another investor without an intermediary or expert.

The investors here receive the income through transaction fees, they make higher charges on any transaction they carry out. One of the demerits is that it has no regulations due to its unknown source and it is a risky investment.

Commodities

Investing in commodities is one of the ancient methods of investment, which involves raw materials, like gold and other precious metals. It also includes agricultural products. The process involves buying and selling and at the same time making a profit.

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Certificate of deposit

In certificate of deposite, the investor deposite a certain amount of money in a bank for the period under the agreement. The bank in return issue a certificate while the money so deposited yields a particular interest which the bank pays the investor.

Then according to agreement, the bank can re-deposit the initial fund at maturity either with the interest or the initial fund alone.

Real Estate Investing

Investing in real estate involves the purchase; sale, and lease of landed properties while you expect a huge revenue in return. This type of investing is very lucrative and common among people.

The attractive aspect is that an investor in real estate can monthly or annually collect rental fees from tenants. The fee is determined by the investor who equally owns the profit alone.

What are the processes of investing?

In the financial world, profit is essential, as it is the basic instrument used in carrying out most financial funding. Therefore investing takes the process of disbursing money to a particular goal you set or dream to achieve. Having made a concrete decision and a firm plan.

The method may take the form of a company share, stock, and any commercial venture or can be a property. The organisations plan is to have a convincing approach and understand the major risk that involves investing. While the individual’s hopes are high that the result will be an amount higher than the initial capital.

Investing and risk management

One other aspect of an investment, which every investor puts to mind, is that investment is associated with risk just as everything in nature has a connection with possibility.

The important thing is not counting the risk but setting hopes for future gain. However, if you take the right decision you will be able to regain every bit of loss you incurred while in the process.

There are more methods of coping with risk (risk management) you can choose to use diversification. It means planning and creating multiple investments. When you can create, different investments you will be able to cover one loss with another gain.

For instance, if you invest in Stock with an M&B company and invest in bonds with A&B Group of Company. If M&B is doing well while A&B is losing some profit, you could cover the loss with the stock investment.

It is a common thing that when you initially start the journey of investing you might confront loss. This might be a sign of testing how interested you are.

Therefore, the right mindset would be for you to follow up and keep dedicating. More losses give you the knowledge and experience to become an expert. Some of the knowledge you will gain includes:

Having a good knowledge of the present market fluctuation which means utilizing capital returns. It is the act of knowing when to buy assets at a low price and resell them at a high price.

How to manage investment risks

Risks are unavoidable it is something to expect as you dream of making investments but at the same time, you need to take precautions.

There is however a fact to remember, taking any of the investment methods will not make you wealthy overnight. It takes patience and a gradual process to reap your good work but while doing this endeavor put the following into practice:

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Put your plans down before embarking on the process of investing

Take for instance you want to dedicate your money to a particular project for which you want generous revenue in return.

The first step is to take a look at the type of investment you can afford and consider the capital and nature. Maybe you want to invest in stocks, understand your financial capacity, imagine and dream about what it will cost you.

Have a good knowledge of the investment method

Now you have a good knowledge of your financial stand point next make research, and talk to someone you know who deals in such investing. Gather enough facts, which includes the losses and benefits. If possible, visit any of the stock markets and get enough lectures on your project.

Seek an investment adviser

This is someone probably a member of the stock or security company in charge of giving advice to clients and answering questions related to securities. You can consult one free of charge as they only get a commission for the job they do.

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