InvestorWords.com defines ‘investment’ as buying a financial product or other article of value with the hope of positive future returns. Business investment occurs when a producer buys a physical good, such as inventory or a piece of durable equipment, with the hope of improving future business. In short, investment is using money to make more money, or making your money work for you.
There are many ways to invest money. One of the most popular types of investment is bonds, where money is lent to a company or to the government. Many people are attracted to bonds because of their relative safety. An investment in bonds from a stable government is virtually risk free. On the downside, interest rates on bonds are very low, and their rate of return is usually lower than that of other securities.
You can also make a short term investment, which can be in the form of money-market funds, a bank savings account, Treasury bills or certificates of deposit. The advantages of this type of investment are that it matures in a short time and the government guarantees it. The disadvantages are the low rate of inflation these investments typically pay, and the losses that are often incurred due to inflation.
Buying stocks, which in essence is purchasing a share of ownership in a corporation, is another form of investment. There are two types of stock: preferred stock and common stock. Preferred stockholders usually receive dividends at specified times in predetermined amounts, while common shareholders may or may not receive dividends, depending on company profits.
Many people opt to invest in gold. One of the traditional ways of investing in this valuable metal is by purchasing gold bars or coins. An alternative is to open a gold account in a Swiss bank, which deals in gold transactions. Gold can be traded on the stock market using exchange traded funds, and some firms in the UK offer spread betting in gold investments. Another means of investing in gold is by trading in the shares of mining companies.
A mutual fund is a collection of stocks and bonds. Purchasers of mutual funds combine their money with that of other investors, so that the group is able to pay an expert to choose particular securities to suit the requirements of the fund. They can have a specific focus or strategy, whether in government bonds, small stocks, industry stocks or “blue chip” stocks. Although the stock market crashed twice in the first decade of the millennium, some mutual funds managed to produce extraordinary gains for their investors.
It’s profitable and safe to invest in real estate. There are two types of property investment: direct and indirect. With direct investment you purchase an actual property and deal with issues such as maintenance, finding tenants, collecting rent etc. With indirect investment on the other hand, you would invest in a superannuation scheme or a managed investment fund. You acquire ownership without actually having to find or manage the property yourself.
All types of investment carry some element of risk, and aside from savings, you should only invest funds you can afford to lose.