What Are Investments?

What Are Investments?

In essence, investing conjures an image of person or people spending resources with the ambition of receiving more resources at a future date for a commitment in the present.  Moreover, this is a slightly different way to consider earning money outside of the traditional exchanges of service for remuneration.  Rather, investing allows you the value-added capacity to earn profit on top of and above whatever you do for a living.

There are a number of different mediums for investing from stocks and bonds to property purchases and business ventures.  You have to choose one or a combination of these investments to suit your specific financial circumstances, but there will be advantages and disadvantages (or an opportunity cost of sorts) with each option.

Why Invest?

Survival is an inherent human instinct that is inextricably linked to the monetary system, which is the broadest societal organizing principal in existence.  Thus, by virtue of transitive properties humans are inherently geared to seek larger sums of money throughout their lives.  Investing is most certainly one of the best ways to achieve a person’s need to earn more money and/or to have long-term security and the freedom to choose from different options in the short-term.  Ultimately, investing wisely can guarantee a retirement plan is safe without the need to comprise the current quality of life.

Additionally, the contemporary economic paradigm is indicative of the retrenchment of the welfare state in many of the world’s most advanced nations.  Consequently, great impetus is being heaped on people to take the individual responsibility to ensure their own social well-being.  Again, investing wisely can make the aforementioned a reality.

Compound Interest

Compounding is a process that involves re-investing your earnings over a period of time to enhance the potential profit margin from your original investment.  Thus, if you put $ 100 in a bank account that had a compounding interest of rate 7 % annually you would earn $ 7 on your investment after one year and have $ 107 (100 x 1.07) assuming that no other activity had occurred during the year.

This is a fairly simple concept that has massive implications for your personal finances and can be seminal in the process of investing successfully.  However, it is crucial to remember that both time and money (in terms of your re-investment of earned income) are equally important as the longer you can avoid liquidating your account there is a better chance your profit will improve.

Man writing an Investment formula.

Types of Investments

As previously mentioned, there are a number of different options or ‘vehicles’ for investing your money and it is important to examine each one.  For example, bonds belong to a group of investments commonly referred to as fixed income securities.  Essentially, the way in which a bond investment occurs is through the agreement of an individual to transfer their earnings to a government or private company who in turn agree to allow interest to accrue for that individual to make a profit on their investment.  Bonds are very safe investments, but also come with the concession that there is a very small chance that you will see significant returns.

Another type of investment is what is known as a stock or equity.  This is when an individual purchases a share of the ownership of a business and becomes the recipient of a relative proportion of any profits earned.  Stocks are capricious; as it is important to remember that they are directly tied to the markets and their subsequent confidence.

Oftentimes you can purchase a combination of stocks and bonds, which are collectively known as mutual funds.  The money of a group of investors is controlled by a professional business to choose different income security options.  This option is perhaps the most advantageous for people who do not consider themselves knowledgeable investors or feel they have little time to plan their estate.

There are also alternative investment modes, such as options and futures, for example.  In broad terms, equity and debt are the two main categories in which all subsequent investments belong and comprise the basics of investment knowledge.

Investogram attempts to provide relevant information about investment options that is meant to be useful, and, aknowledges that the mention of products in this website is no guarantee of performance. Investogram accepts no responsibility whatsoever and reccomends that readers use this site for general education and then consult an investment professional before any purchase.