What is Investing? | Goals, Advantages and Disadvantages

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Investment is an essential way of achieving prosperity and development. It is an essential activity for wealth creation. Investing in the right business can bring prosperity quickly. However, there are many types of investing one can do. Along with the type of investment, the duration of the investment also plays a crucial role.

Depending upon the time frame of investment, it can be categorized into three types. These are short-term, medium-term, and long-term investments. Investing is a good habit and most of the time it delivers a good return. However, investing in fruitless projects can cause financial loss. Let’s learn how investing works.

How does it work?

Investment is an asset allocation process for generating income or future appreciation. Generally, with this process, people allocate their money for asset purchasing or acquire shares in a business.

The main goal of investment to have profit in the future; where the income will exceed the amount of investment. Depending upon the asset allocation, an investment can be divided into different categories. Here are some common types of investment.

  • Stock Investment

It is an investment process, where someone purchases equities or share in a company. The investor gains profit from the share in form of a dividend. There is a high risk involved with this type of investment, where future growth is uncertain and depends on market volatility.

  • Real-estate Investment

Purchasing real estate property is a simple form of real estate investment. Here the investor gains profit by renting the property. Generally, all properties gain value appreciation in long term and the investor can gain a lot of profit by selling the property in the future.

  • Fixed interest investments

It is a type of investment, where the investor loan some money to the government or a company in exchange for a fixed interest return. Bond and fixed deposits are the best examples of fixed interest investment. It is one of the most secure ways of investment.

  • Cash investments

It is a type of investment, where someone puts their money for some work or business. Investment in any business is the most common type of cash investment. With this type of investment, the entrepreneur also needs to put a lot of effort to gain success in the business.

Advantages of Investing

Investment is the best way to gain prosperity in long term. With the right kind of investment, anyone can get a good return over a period. It is also a form of saving for many people, where the accumulated amounts grow with interest.

Many people also make investments livelihood. These people make a guaranteed profit out of their return. Investments also allow different institutions to raise capital and put it for social development.

Disadvantages of Investing

Doing an investment is also a way of risk-taking. Anyone can lose their entire savings with an unfruitful investment. The investor has to remain vigilant about the market volatility and invest in the right business.

Generally, a high-risk investment gives a high return and a low-risk investment gives a low return. The investor needs to evaluate the risk and different factors before doing any investment.

References

  1. https://books.google.com/books?hl=en&lr=&id=ErPLnNw2yBgC&oi=fnd&pg=PP16&dq=what+is+investing&ots=nI8ee1AyK2&sig=EpCAEuMTe8xj6n1s-oC-mar5Z5k
  2. https://www.tandfonline.com/doi/full/10.1080/20430795.2013.776255