Definition and types of investments: what an investor needs to know

Investing is one of the best ways to multiply capital and earn extra income. 

In this article, we tell you what investments are and how they work, as well as what are popular investment objects and factors when choosing an asset to invest in.

What are investments and how do they work

Investments are the purchase of assets that allow capital to grow and generate future profits. They allow investors to make money in two ways. 

The first is making money on the difference in asset prices when buying and selling.

The second is to earn regular income in the form of interest or dividends. 

There are different types of investments in the financial market. The most popular are investing in stocks, bonds, currency or cryptocurrency. Investing in any asset has a certain amount of risk, depending on its type. But the riskier the asset, the more profit an investor can make. 

To minimize the risk of loss, experienced investors diversify their portfolios. That is, they invest not in one asset format, such as startup stocks, but in several. For example, they invest in startup stocks and corporate bonds. This way they get stable income from bonds, and if startups' stocks fall in value, losses become less tangible. 

Investment Objects

As we have already written, there are different objects for investing in the financial market. 

Stocks

These are securities that help increase the value of an initial investment in the short, medium or long term. If an investor becomes a shareholder, they can earn income from dividends, or they can make money from asset price fluctuations. 

 

You can learn more about stocks here. 

Bonds

Securities that are a loan agreement between an investor and a company. The investor lends the company a certain amount of money for a clearly specified period, such as one year, two years, etc. At the end of this period, the company pays the investor the entire amount invested + interest every six months. 

 

Bonds are a stable source of income and are good for investors who do not like to take risks and want to know exactly how much money they will receive and in what period. 

 

Learn more about bonds here. 

Property

You can invest in property, such as houses or apartments, either directly by buying them or through real estate investment trusts. The price of real estate, like stocks, depends on the market and can fall or rise in value. 

Currency

Investing in currencies takes place in the foreign exchange or Forex markets. The main advantage of currency investing is that you can make a quick profit through short-term investments. For example, you can make money on the price differences of currencies by buying them at one price and selling them at a higher price. 

 

There are many strategies for making money with currency market investments: scalping, intraday trading, swing trading and position trading.

 

You can learn about how the foreign exchange market works and trading strategies here. 

Cryptocurrency

Although the first cryptocurrency, Bitcoin, appeared back in 2008, the main popularity of digital currencies gained in 2017-2018. This is a relatively young and risky source of investment, which allows you to get the maximum income in a short time. 

 

Since the cryptocurrency market is very volatile, you can both make good money and suffer significant losses on asset price swings. A less risky way of investing in cryptocurrency is stacking. In terms of the scheme of work, it is similar to a deposit in the bank. The investor “freezes” the amount of assets for a certain period of time and receives interest for this — from 5 to 10%.

 

Learn more about cryptocurrencies and how to make money from them here. 

Factors when choosing an investment

For investments to bring income rather than losses, it is important to be careful in choosing the source of investment. Experienced investors advise to pay attention to the following factors. 

 

- Yield. The most important factor that helps determine an investor's potential profit from investing funds in an asset. 

- Riskiness. The higher the riskiness of an asset, the more profit an investor can make. But on the other hand, because of the high riskiness of the asset an investor can lose everything. 

- Liquidity. Says the demand for the asset, as well as the ability to get their money back and make a profit without losing some of it. 

- Investment Period. Various investment projects can set a period during which the investor cannot withdraw the invested funds. Or he can, but with impressive penalties and commissions. Before investing you should carefully study the conditions for withdrawal of funds. 

- Entry threshold. The amount at which a person can start investing. Depending on the specific project or asset, the entry threshold may differ. 

- Simplicity. Some assets are characterized by a complex structure. Therefore, before investing in such an asset, the investor needs to understand its work, features to understand how profitable they are and what profit can bring. 

3 keys of successful investing

Investments help money “work and grow”. Here are three strategies which will help to make a reliable investment strategy.

1. Know the peculiarities of the object of investment well

Before investing in an asset, understand how it works, what factors influence price changes, and what its characteristics are. Understanding these components will help you make the right trading strategy and choose the right investment period. 

2. Understanding the economic situation of the market and country

Economic factors have a strong influence on changes in asset prices. Therefore, when choosing an investment, familiarize yourself with the economic situation of the market or country to be able to forecast the potential of the asset and anticipate risks. 

3. Diversify your capital

Investing everything in one object is risky because you can lose money if the price of the asset falls. Diversifying your capital helps you divide your investments into several asset categories and minimize the risk of loss. 

Benefits and Risks of Investing

The most important risk of investing is the lack of guarantees of return on investment. It is important for an investor to understand that a steady and stable income is not possible in all cases, and that successful investing requires solid knowledge of the asset itself and economic factors. 

The main advantage of investing is the opportunity to get unlimited income with the right strategy and understanding of all factors. If an investor can calculate all the risks, diversify the investment portfolio to minimize them and direct the funds in the right direction, he can quickly recoup the investment and receive a substantial income. 

Investment fund S-Group is a reliable partner and assistant in investments. Investors can choose the most suitable direction for themselves: Forex Market, S-IPO, S-Pharmaceutical, SNT and earn money. Each direction has a professional team of analysts who will help select the best way to invest and analyze the risks.