Investments and even the mere process of investing is really not that difficult to understand. There are lots of misconceptions about investments and investing that make it look like a tedious job, when in fact, it requires no sweat at all! For beginners, learning about this can be quite an information overload scenario, because there are lots of fascinating things to learn. But worry no more, because here is your guide to learn the basics of investing!
What is Investment?
An investment is a committed money or capital to a particular undertaking in which someone can expect of getting something in return; thus the name return of investment. It is putting your money into a particular instrument and letting it grow on itself so you can claim back its fruits. In other words, investing is “making the money work for you”. You do no hard work, you do not sweat, you just leave your money there. Some bankers and financial experts even call it, “passive income”. You get the return money without even sweating for it.
One thing to keep in mind when investing is that, investments are different from savings. While your savings are kept cold in your wallet and bank accounts for future circumstances, your investments are your money out on fire that keeps growing as dependent on your chosen instrument. What you invest are your excess money, the extra bills you have which you decide to keep instead of spend in luxurious things. While savings may grow from half to a 1 percent per annum rate, your investments can grow more depending on how aggressive you are as an investor.
People who invests, or investors as they are called can be classified based on three aspects: Investment Objectives, Investment Horizon and Investment Personality.
Investment objectives describe the goals why people invests. There are main objectives: preservation of capital, for regular income and for capital growth. Preservation of capital as one objective is about keeping safe of your money. It is like locking it in a particular instrument, so you are assured of having the money anytime you need it. The second objective which is to attain regular income is commonly the objective of investors who are nearing retirement or those who are fresh from retirement. They want to have that stable and regular income so they invest their money. It is like wanting that money on their doorsteps every month or whenever they agreed to. Lastly, the third objective is for capital growth. This is the most common reason why people invest – to make their money grow. This is the goal of the people who have time to wait for their money to grow up to their desired amount or value.
Anchored on the objectives, there are also three investment horizons; the short term, the medium term and long term. These horizons are heavily dependent on the investor’s age. If you are still young, say at 30, you have all the time in your hands to go for a more aggressive, a more long-term investment. It is like ensuring that you’ll have a good retirement because you have invested your money on a long-term basis. However, for people who wants to invest but on their 60s already, it is best to opt for short-term horizon. Since they are not assured for a longer life, short-term is good enough for them.
Lastly, it is an important aspect to look at your personality as an investor. Upon knowing the objectives and horizon, reflect on yourse;ves. What type of investor are you? There are two archetypes of investor – the conservative, and the aggressive. If you think you can do well with a lot of risk, then you’re an aggressive one. But if you want to play it safe, and you want your money in tact even with small percent of increase, then you are probably a conservative one.
It is important to take note of these three, because these are the primary things you have to understand and realize when you are about to invest. Now, after realizing who you are, you need to decide what instrument or to where particular institution or body you’ll be giving your money. So, take note of these instrument?