An understandable definition of investing is that investing is an action that redirects resources from today to a future date with the expectation that the investor will reap an increased value or benefit at some future time. Some examples that most people are familiar with include investing in property, such as a house or land, a business through buying stock in a company that you expect to grow and make profits, and financial instruments such as bonds.
Investing Requires Research
The first step in making an investment is to analyze the risk and potential involved in whatever vehicle you are choosing to invest in, such as property, stocks, and bonds. What you desire is to have low risk and high profitability and gain over time, that is better than you may be able to get from a regular savings account. If you do not analyze the risk and potential, you are not investing, but simply gambling or speculating because not analyzing means that you may risk the loss of your principal sum that you invested.
If you buy a car, that is an asset, not an investment. It will depreciate in value, in most cases, over time. If you buy a house, that is an asset but also an investment because it should appreciate in value, in most cases, over time. By investing in stocks, after doing your research on the potentials for growth in value and profitability, you are hoping for gains over time. Bonds are more secure, and will pay a higher interest rate over regular savings, so they are considered investing also.
Investing Requires Research
The most important concept of investing is that you want, at minimum, to not lose your initial investment. That is why research and analysis is very important, so you make an educated investment, and not a guess. Investing is one area where intuition is not a wise thing to depend upon. Solid research into the facts of the investment are needed. If a stock, you want to look at the company, their bottom line, personnel, equipment, pricing, earnings, marketing, audience, potential for growth, and the competition. If you neglect to do this, your initial investment is at great risk and you could lose your stake.
What you want is to make more money, get increased value out of your initial investment, for the future. Many investments are long-term investments. Over time, there can be good profitability with many investments. Still, even with the best research and most conscientious efforts to determine good investments, there are many other factors that can interfere with your projected profits.
The bottom line is this: if you cannot afford to lose your investment money, you should stick to things that are closer to guaranteed returns, such as regular savings or money market accounts. Low risk will preserve your initial investment and bring some modest earnings over time. Looking for dividends that can be reinvested are another way to increase your investing without risking your own capital. If you have a lot of time, you can go with higher risk items; if not, stick to low risk investing.
For more information on investing, visit http://www.brokers.com.