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Investing is the act of putting money into an asset to gain more income or profit. Invested funds may be used for the purchase, for example, of stocks (a share in a company), mutual funds (a pool of assets managed by professional investment managers), or bonds (an IOU issued by a government or corporation). Investing can also refer to paying money for any good or service and expecting a future return. Let’s examine some options.
There are many different types of investments:
Bonds: Bonds represent debt and ownership in a company, organization, government entity, or other issuer’s ability to repay its creditors with interest. The bond is essentially a loan from the investor to the issuer of the bond. The principal, face value, and coupon payment of a bond are generally fixed by contract.
Quasi-bonds: Quasi-bonds represent debt and ownership in a company, organization, or government entity without the expectation of repayment. These include securities such as equity warrants and some classes of convertible bonds, which may be exercised at the holder’s discretion.
Equity: Equity investments represent ownership in a company or asset, expecting that capital gains will accompany any value increase. Stock represents the share of each stockholder’s portion of ownership in either all or part of a business, depending on how it is organized. The income from the equity is provided in various ways, including dividend payments and selling shares in an initial public offering.
Property: Real Estate refers to ownership of a physical asset such as real estate or other building(s) or housing forms. The property’s value may fluctuate with market conditions, the level of maintenance the property needs, and any renovations made.
Commodities: A commodity is a basic good used in commerce with complete or substantial fungibility. Examples are oil, natural gas, gold, silver, wheat, and corn.
- What is fungibility? The quality of a given brand of grain may differ slightly from batch to batch due to variations in soil conditions, but the same brand of wheat will be nearly identical from one shipment to the next.
Also, where does gold come from? Stardust of course!
Cash equivalents: Cash equivalents are short-term investment vehicles with a value equal to their face value at maturity, meaning no gain or loss is expected upon redemption.
Exotic investments: The term “exotic” usually refers to alternative investments not included in either of the two main asset classes, equities and fixed-income. Exotic investments have tangible assets such as art, wine, homes, cars, watches, and jewelry; intangible assets such as derivatives contracts and business ventures; alternative vehicles such as hedge funds and private equity; and a variety of other investments presented by financial technology companies.
The two things to keep in mind before investing:
Business Analysis: Business analysis examines a business organization or operation; it may also refer to creating or using such networks or features.
Risk Management: Risk management is the practice of identifying and reducing risks. It applies to any situation that involves uncertainty, ranging from business decisions to finding a romantic partner online.
In closing
The key to financial independence isn’t how much money you have, but how you allocate your money. Jim Rohn recommends using the 70/30 Rule to apportion your after-tax income as follows: 70% for necessities and luxuries, 10% for charity, 10% for wealth creation, and 10% for savings. So, stop burning cash and start investing!
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