Definition of investment, types of investment, and how to invest in Stocks and Real Estate
Photo by Mathieu Stern on Unsplash
Investing In Stocks, Real Estate, and Other Assets For Wealth Creation.
So many people have gotten tired of working for money that they resort to saving, but saving is not a solution to the issue of money.
Saving can only be a means to secure one's finances for a short period. It is not an effective and reliable means to have your money work for you in the long run.
Investment is the only way to generate long-lasting wealth that will work for you.
What are investments and the act of investing?
Investment is an asset acquired to generate income or appreciation.
Appreciation further refers to the increase in value of an asset over some time.
Investing is the act of acquiring assets that increase in value to generate more income.
Now you have known the meaning of investment and the act of investing, is also important to note that not all investment is a good investments.
And not every financial move can be regarded as an investment.
What Is A Bad Investment?
A bad investment is a process of investing in anything that depreciates, such as a liability.
Examples of liabilities are bank debt, interest payable, deferred revenue, and accrued expenses.
These shouldn't be considered investments.
What Is a Good Investment?
A good investment is a process of investing in anything that appreciates, such as an asset.
Examples of assets are land, cash and cash equivalent, patents, and PPE(property, plant, and equipment.)
Modes/ Types Of Investment:
There are several means by which one can invest their finances so it would generate greater returns.
These modes of investments may include Stocks, Bonds, Real Estate, mutual funds, precious metals, and even big and small businesses.
Anything that appreciates is considered a worthy investment, and all these are part of them.
Let's now list out the types of investment:
1. Stocks:
A share of stock is a piece of ownership of a company.
You acquire stocks by buying a share of stock from a company, this share allows you partial ownership of the company.
It means that you will participate in the company's gains and losses.
By owning a stock share, you may be entitled to the dividend distributions generated from the company.
2. Bonds:
Bonds are the lending of your money to institutions or government entities for a return in payment with fixed interests over some time.
You make your profit through the return of payments with interest.
3. Real Estate:
Real Estate is the process of buying a piece of land, office buildings, or a home.
It may include acquiring and developing sites for specific uses, after which income is generated from the developed sites.
Most people buy up to two or three pieces of land and then wait till after five years when it must have appreciated (in value) to resell them.
After the resell, they now have the profit generated from the resell and the actual amount spent acquiring the land.
Some can still go further to acquire more lands at a cheaper rate with a part of the money generated from the resell.
After that, they wait another four to five years to make another resell, so the cycle of wealth creation continues.
4. Mutual Funds:
Mutual funds invest in stocks, bonds, and other assets all at once.
For example, it allows you to buy shares of a single Mutual fund that holds ownership of emerging companies. Investing in mutual funds can be profitable when the value of stocks and bonds rises.
5. Commodities:
Commodities include raw materials such as crude oil, natural gas, and petroleum products.
It may also include agricultural commodities such as wheat, corn, and soybeans. You can also buy commodities indirectly through Stocks and Mutual funds.
6. Precious Metals:
Precious metals such as copper, silver, and gold are great investments.
Gold is a good investment as it is not affected by inflation, it provides a hedge against currency devaluation.
For those willing to start small, instead of buying just any kind of jewelry, you can invest by buying pure gold pieces of jewelry, and as this appreciates, you can still resell them in the future for a higher amount.
6. Small and Big Business:
Starting a business is a form of investment so long that it yields returns higher than what is used in starting it up.
It is also essential to understand that entrepreneurship is the toughest form of investment, as it usually takes a lot of time for the business to grow.
There are lot of evaluation and risk involved, but when the business becomes successful, it proves to be a worthy investment that can stand the test of time.
Examples of successful businesses are Amazon, Google, and Apple.
All these businesses have proven to be worthy investments as they appreciate the value and have also stood the test of time.
It is essential to note that despite the massive returns one can make from investing, investing itself requires a certain amount of risk.
Sometimes it takes a higher risk to generate higher returns from the investment.
Investing itself requires careful observation and calculation to avoid taking unnecessary risks that would lead to an ultimate loss.
You can hire a financial advisor in the specific field you wish to invest. Such a person would let you know the ins and outs of whatever investment you choose to make and the best time to invest in them. This will help avoid any financial mistakes.
Bonds are the lending of your money to institutions or government entities for a return in payment with fixed interests over some time.
You make your profit through the return of payments with interest.
3. Real Estate:
Real Estate is the process of buying a piece of land, office buildings, or a home.
It may include acquiring and developing sites for specific uses, after which income is generated from the developed sites.
Most people buy up to two or three pieces of land and then wait till after five years when it must have appreciated (in value) to resell them.
After the resell, they now have the profit generated from the resell and the actual amount spent acquiring the land.
Some can still go further to acquire more lands at a cheaper rate with a part of the money generated from the resell.
After that, they wait another four to five years to make another resell, so the cycle of wealth creation continues.
4. Mutual Funds:
Mutual funds invest in stocks, bonds, and other assets all at once.
For example, it allows you to buy shares of a single Mutual fund that holds ownership of emerging companies. Investing in mutual funds can be profitable when the value of stocks and bonds rises.
5. Commodities:
Commodities include raw materials such as crude oil, natural gas, and petroleum products.
It may also include agricultural commodities such as wheat, corn, and soybeans. You can also buy commodities indirectly through Stocks and Mutual funds.
6. Precious Metals:
Precious metals such as copper, silver, and gold are great investments.
Gold is a good investment as it is not affected by inflation, it provides a hedge against currency devaluation.
For those willing to start small, instead of buying just any kind of jewelry, you can invest by buying pure gold pieces of jewelry, and as this appreciates, you can still resell them in the future for a higher amount.
6. Small and Big Business:
Starting a business is a form of investment so long that it yields returns higher than what is used in starting it up.
It is also essential to understand that entrepreneurship is the toughest form of investment, as it usually takes a lot of time for the business to grow.
There are lot of evaluation and risk involved, but when the business becomes successful, it proves to be a worthy investment that can stand the test of time.
Examples of successful businesses are Amazon, Google, and Apple.
All these businesses have proven to be worthy investments as they appreciate the value and have also stood the test of time.
It is essential to note that despite the massive returns one can make from investing, investing itself requires a certain amount of risk.
Sometimes it takes a higher risk to generate higher returns from the investment.
Investing itself requires careful observation and calculation to avoid taking unnecessary risks that would lead to an ultimate loss.
You can hire a financial advisor in the specific field you wish to invest. Such a person would let you know the ins and outs of whatever investment you choose to make and the best time to invest in them. This will help avoid any financial mistakes.
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