Some Areas of Investment
To understand investment it is necessary to first know what it is. Investment is the putting of capital or funds at risk to earn returns in the future for the purpose of generation of more capital. This is in exchange of shares of stock issued by a company to the public as a share investment. There are different types of investment like stock investment, bonds and property investment. These investments are broadly classified as long-term, short-term and variable.
The main purpose of putting the assets in risk is to earn returns in the future with the hope of some return/value in the near future. So investing in bonds means mortgaging the assets and using them as security for a loan. This loan is taken out by a financial institution or a bank in return for securities i.e. stocks, debentures etc. Bond market is the only market where any two distinct securities can be bought and sold i.e. equities and bonds.
An important area of investment nowadays is commodities. Commodities refer to the things that are bought and sold as trading commodities on the commodity market. There are various factors that determine the prices of commodities and these include demand and supply, demand fluctuations and profitability of the company involved in commodity trade. Some of the commonly traded commodities are petroleum, gold, silver and agricultural produce like food grains etc. Some other areas of investment which you may not have come across are currencies, derivatives, bond market and mutual funds. When you want to earn some good returns on your investment, you need to invest in commodities because these make for good diversifying instruments.
A short-term investment refers to any security which you buy for a short duration of time. This might be a leasehold asset like a car or a home. It can also be an option of buying or renting out a property which will be held as collateral for the loan. These types of investments can be very attractive when you consider them as short-term investments because the returns tend to be substantial within a short period of time and also generate a minimum amount of loss over the years.
Long term investments which make up the majority of long term investments are usually in the form of bonds and mutual funds. In a mutual fund, investors who invest in it will in turn be able to gain returns from the investments of others who also invest in it. In a simple way, mutual funds are similar to investment portfolios where the objective is for the investors to gain returns from the investments of others in order to distribute the risk between themselves. There are many different types of mutual funds like, equity funds, growth funds, balanced funds and balanced growth funds. All these have different objectives, and thus there are different types of investments which make up their portfolio.
One final area of investment is real estate where you can either own your own home, buy a rental property, or even invest in commercial real estate. You can also invest in land using cash through mortgages, lines of credit, or even through financing through banks. Another way of investing in real estate is by using it as a rental property. This can make for an attractive investment with many tax advantages, especially if you are able to lease the property. You can also get involved in various activities like owning or running a day care center which would earn you money on the interest.
