Investment in any business project requires guidance and a plan to make an investment a successful one. For this, there are many techniques and ways which teaches a businessman how and where to invest money, from scratch.
What is an investment?
Now the question arrives, what investment actually is? Investment in simple words is sacrificing a certain amount of money on any business or project and expecting a higher level of return plus profit, in future.
Practical demonstration of how investment is done?
For example, a person invest $300 each month in a business which earns a good amount of profit and provide a great percentage of return every year. The business has agreed to give a 8% of return annually.Towards the end of year 5, a person will have earned a total of $19440, from which $18000 is the amount which had been invested in 5 years and $1440 will be the profit a person has earned in these 5 years, on his investment.
Is investing money a good or a bad option to earn profits?
Every new decision in life comes with a price of failure or success. Business is a platform where there are high risks of losing than winning and a person investing in it knows the advantages and disadvantages of investment.
Advantages of investment:
1: It gives expectations for healthy long term returns. Investing today can bring up a high return over 10years. Putting your fixed rate of investment money to work, to earn the potential amount of return which can increase over the period of years due to many economic factors.
2: Inflation as we all know is the rise in the cost of all basic essentials of living over the years, affecting incomes and lifestyle. To beat the effect of inflation ruining the luxurious lives, investments are made on assets that are not just able to provide high income returns but it also offer the potential for capital growth.
3: Beside a person’s own business, it is beneficial for him to invest in quality assets and shares outside of it to gain returns from many areas of business. This money from many areas of investment, can be further used for high investments or for day to day living.
4: There is a reduction in a risk factor because money that is bieng invested on businesses and in companies is great security as decreased portfoli hazard can be accomplished through the utilization of diversification from other investments.
5: There is a ■■■■■■■■ of ownership with you due to investment in the shares of the company, no matter how much low share u have bought. There will always be an ownership in the company meetings and presentations. U can gain high ownership by buying a larger share or by investing in multiple companies.
Disadvantages:
1: Risk of investing in funds with higher expense ratios and sales charges, due to lack of knowledge. Expense ratios higher than 1.20% are considered as a cost end. This can eventually decrease the rate of return and profit.
2: Income statements and balance sheet can be put as window dressed. A person can agree to invest upon seeing window dressed fake statements that can cause a greater loss on profit and returns, in future.
3: High tax rates can eventually lower the percentage of returns on investment. Investirs always faces a high tax paying problems which does not benefit there investment.
4: Investment in volatile market can cause a person a great amount with very low return as it shares fluctuate so many times in one day. These fluctuations are unpredictable most of the time and can cause great losess for the investors.
Types of investments:
Money can be invested into any of the types of investment, for the expectation of gain in the future.
Many types of investments are categorised under growth and defensive investment.
Growth investment:
These are more suitable for long term investors that are willing and able to withstand market ups and downs.
1: stocks:
Stock is the share of a company which is bought to gain ownership in the company and claim returns from its assets and earnings.
There are two types of stock:
Common stocks:
Common stock holders are like company’s family stock holders whose return is always distributed last after preferred stock members, debt holders and bond holders are paid.
Dividends are paid to them but at the discretion of the board.
Preferred stocks:
The members are preferred over common stock holders at the time of payment.
Dividends are paid to them at a fixed rate and time.
2: Mutual funds:
Your investment is clustered with various different financial specialist to buy stocks and bonds are known as mutual funds investment.
For hight income and growth, each mutual funds invest in a variety of stocks and securities for future risk and losess if happened, can be easily controlled by the diversification of investment.
3: Property:
Property is considered as a growth investment because its value fluctuate over the period of time. Property can be buyed at the decrease value over a certain period of time can be sold during the times of inflation when cost of property grows. This is a common type of investment with low risk.
Defensive investment:
These are more focused on consistently generating income, rather than growth, and are considered lower risk than growth investments.
1: Bonds:
Bonds are taken by government and companies from investors, to increase their project funds and investment. In return, investors are promised to be payed back all the money invested by them with interest, over a certain period of time.
Bond market also known as the debt market, provides debt to the people for the investment in shares or on a new business, which return is payed back annually or in installments, as agreed in the contact.
2: Cash:
Cash investment plays an important role as everyday bank accounts and savings account, where a certain amount of money is saved each month for future security and emergencies. It does not offer any capital growth but the cash is saved with neither deduction nor an increase, as a safe future wealth.
Ways to invest money wisely:
1: A person should start investing from early age as soon as he starts to earn. Early age investment provides a greater time to grow and better chances of savings and cash growth even if a person does not have a high amount to invest. Waiting to earn and invest huge amount for a higher return will reduce a precious investment and growth time which can eventually result in zero future and retirement planning.
2: Certain set amount of money should be automated directly to the desired savings or bank account. When a person gets a salary, he is always tempted to spend it on other unnecessary things, this reduces the chance of adding money into the savings account punctually. Hence no saved wealth for future. To prevent this, a tested automation strategy is applied on a salary to be deducted naturally each month to be delivered from a salary amount to the savings account. This way an amount is securely saved each month, for a saved future wealth.
3: Invest in certain savings accounts each month that can only be used instantly in unexpected emergencies and short-term planned purchases. A person must have an amount equal to its 6 months salary in the savings account, so that in need there must always be a planned soft cushion to lie down peacefully.
4: One of the best ways to invest money is to invest it in tax-advantaged account, like workplace 401k.
Workplace retirement accounts are always the best option as it provides its employees with many advantages. One of it is, it automatically automate a certain amount in the retirement account by directly deducting it from the paycheck. Taxes are also directly cut from the retirement account.
Beside retirement account, there is another tax-advantaged account known as 529 savings plan which allows earnings to grow tax-free if you use the funds to pay for qualified education expenses.
5: Choose your investment based on your horizon. Investment horizon is the amount of time a person needs to save into his account, before starting to invest it at a certain age.
When a person plans to retire, the investments should be enough to make him spend the rest of his life peacefully and stress-free with the saved money.
Conclusion:
Investment is done to create and grow the wealth for the stable future and luxurious lifestyle. But it is very necessary to take up the advice of finance experts before investing in any type of investing categories. This will always reduce the risk of loss and the money will grow and give return wisely without any scam or waste.