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The Basics Of Investment And What It Entails.

Discussion in 'Investments' started by Celestina Angel Serome, Jul 15, 2019.

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  1. Celestina Angel Serome

    Celestina Angel Serome Administrator Staff Member


    Understanding what Investment is and what it entails is a compulsory task for anyone who wants to invest. One has to have a clear understanding of what it means to invest and how to invest to yield good income.


    What it means to invest:
    Investing is putting money to work to start or expand a project - or to purchase an asset or interest - where those funds are then put to work, with the goal to income and increased value over time. The term "investment" can refer to any mechanism used for generating future income. In the financial sense, this includes the purchase of bonds, stocks or real estate property among several others. Additionally, a constructed building or other facility used to produce goods can be seen as an investment. The production of goods required to produce other goods may also be seen as investing.

    Taking an action in the hopes of raising future revenue can also be considered an investment. For example, when choosing to pursue additional education, the goal is often to increase knowledge and improve skills in the hopes of ultimately producing more income. Because investing is oriented towards future growth or income, there is risk associated with the investment in the case that it does not fall short. For instance, investing in a company that ends up going bankrupt or a project that fails. This is what separates investing from saving - saving is accumulating money for future use that is not at risk, while investment is putting money to work for future gain and entails some risk



    Note:

    Investment is the act of putting money to work to start or expand a business or project or the purchase of an asset, with the goal of earning income or capital appreciation.

    Investment is oriented toward future returns, and thus entails some degree of risk.

    Common forms of investment include financial markets (e.g. stocks and bonds), credit (e.g. loans or bonds), assets (e.g. commodities or artwork), and real estate.
    One beneficial means of investing is on bonds, it is safe and u also don't get to Lose your investment.


    What bonds are and how they work?

    Bonds are loans made to large organizations. These include corporations, cities, and national governments. An individual bond is a piece of a massive loan. That’s because the size of these entities requires them to borrow money from more than one source. Bonds are a type of fixed-income investment. The other types of investments are cash, stocks, commodities, and derivatives.

    There are many different types of bonds. They vary according to who issues them, length until maturity, interest rate, and risk. The safest are short-term U.S. Treasury bills, but they also pay the least interest. Longer-term Treasurys, like the benchmark 10-year note, offer slightly less risk and marginally higher yields. TIPS are Treasury bonds that protect against inflation. Municipal bonds return a little more but are riskier. Corporate bonds have more risk. The highest paying and highest risk ones are called junk bonds.


    How Bonds Work

    The borrowing organization promises to pay the bond back at an agreed-upon date. Until then, the borrower makes agreed-upon interest payments to the bondholder. People hold own bonds are also called creditors or debtholders. In the old days, when people kept paper bonds, they would redeem the interest payments by clipping coupons. Today, this is all done electronically.

    Of course, the debtor repays the principal, called the face value, when the bond matures. Most bondholders resell them before they mature at the end of the loan period. That's because there is a secondary market for bonds. Bonds are either publicly traded on exchanges or sold privately between a broker and the creditor. Since they can be resold, the value of a bond rises and falls until it matures.



    Advantages

    Bonds pay off in two ways. First, you receive income through the interest payments. Of course, if you hold the bond to maturity, you will get all your principal back. That's what makes bonds so safe. You can't lose your investment unless the entity defaults.


    Second, you can profit if you resell the bond at a higher price than you bought it. Sometimes bond traders will bid up the price of the bond beyond its face value. That would happen if the net present value of its interest payments and principal were higher than alternative bond investments.


    Like stocks, bonds can be packaged into a bond mutual fund. Many individual investors prefer to let an experienced fund manager pick the best selection of bonds. A bond fund can also reduce risk through diversification. This way, if one entity defaults on its bonds, then only a small part of the investment is lost.
     
  2. ujoh

    ujoh Member

    Hello,
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