What Are The Objectives Of Investment
Before you decide to invest your earnings in any one of the many investment plans available in India, its essential to understand the reasons behind it and the investment meaning. While the individual objectives of investment may vary from one investor to another, the overall goals of investing money may be any one of the following reasons..
The Process Of Individual Investment
Individuals who invest money do it either directly or indirectly. Someone who buys a piece of art or shares in a company is making a direct investment. On the other hand, the person who puts money in a bank, savings and loan association, credit union, insurance company, or retirement plan is making an indirect investment. It is indirect because the actual investment of the money is made by a second party: an insurance company, for example, takes the premiums paid by its policyholders and invests the money in stocks, Treasury bonds, or municipal bonds. Company policy determines the nature of the investment the individual who originally provided the money that is invested has no part in the decision-making process.
Direct investments are more complex and require more knowledge on the part of the investor. The purchase of stocks and bonds is handled through a brokerage firm or other agency. Such purchases require more information in order for the investor to make a wise decision. It is the business of a stockbroker or other investment advisor to provide the information needed by the investor.
The purchase of such collectible items as works of art, jewelry, classic cars, or antiques is often done at auctions. Buying collectibleswhich the investor expects to increase in valuerequires a good deal of information and knowledge of the market. With every such purchase there is the risk of a future decrease in the items value.
Analyze Your Financial Needs
Firstly, analyze your financial situation concerning risk tolerance, investment objectives and other factors like family size, number of earning members and life goals. You may even take help from a financial professional. It will help you clarify any doubts about what is investment meaning for you? and identify the suitable options.
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Why Should You Invest
You may be wondering why to give so much importance to the question what is investment meaning, when you can work towards saving more from your earnings instead. Taking a portion of your income and saving each month will only create a reserve fund, which may prove to be inadequate in covering your family against a medical emergency.
On the other hand, now that you know what is investment, you will understand that investing your money leads to wealth generation and helps in achieving life goals.
Types Of Direct Investment
The opportunities available to the investor in a flourishing economy are numerous. Many of them are speculativethe element of risk is high enough that they can be considered virtual gambles, especially for investors who are not informed. Buying inexpensive penny stocks in a new and unproven company is a speculative investment. The commodities market is also highly speculative and is very complex in its operations .
Although there are few investments without at least some attendant risk, this section deals with the more common types used by the majority of individual and institutional investors. Some investments have the advantage of being tax-sheltered, which means either that no federal or state taxes are paid on the earnings or that the taxes are deferred .
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What Is Investment Meaning In Comparison To Savings
The question, What is investment meaning? becomes crucial when asked about savings. Savings simply mean putting aside a part of your earnings over time. The saved amount of money is subject to no risk and, therefore, does not help you earn any profits or returns. However, its value appreciation remains more or less stagnant, as there is no addition over and above what you add each month.
On the other hand, investment definition is based on the concept of earning returns or profit on the money you first put in a fund or spent on an asset purchase. Remember here that the involvement of risk is what makes them profitable.
When understanding what is investment meaning, remember that there is a direct relation between returns and risk, meaning more significant the risk involved, higher are the chances of earning greater returns. That is why when you are identifying what is investment meaning? for you, you must check the risk profile of different options and review your risk appetite.
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Essay Preview: Assignment : Saving And Investing
Assignment 4: Saving and Investing
1. Describe a real or made up but realistic situation that could cause you or someone you know to have to use money from a financial reserve.
Having to buy a new car is an example. Another would be if someone in the family gets extremely sick and they have many doctor bills.
2. How many months’ worth of expenses do you think your financial reserve should include? Describe at least two reasons for this decision.
I think 6 months is a good amount incase you lose you job. This way you have money to live off until you get another job. Another reason is if there was a fire or disaster because insurance only covers so much.
3. Would you rather have a savings account that offered simple interest, or an account that offered compound interest? Why?
I’d prefer compound interest. Over time the compound interest will build up more interest into the account. After awhile you make interest on the interest you already have gotten.
4. If you were opening a savings account with compound interest, would you prefer an account that offers annual compounding, quarterly compounding, or daily compounding? Why?
I would want quarterly compounding because since it happens more often the interest turns to principal faster so it earns interest and the principal increases faster.
5. Which strategy for saving do you think would work best for you? Why?
$100
9. Describe two examples of debt investments.
10. Describe two examples of equity investments.
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Q How Does An Investment Work
A. Investment is done keeping a financial goal in mind. The investment objectives help generate income and grow over a certain period of time. Investment includes bonds, stocks, PPF amongst others, which helps in growing money and providing an additional source of income.
As investment helps us in growing our money over a certain period of time, there is a certain risk accompanying the investment. You might get better returns in some of the investment options, but they might also come with higher risk in comparison to other investment options providing moderate returns.
Q. How do I start investing?
A. You need to consider some essential points before you start identifying investment objectives and opportunities. Following are 4 key points to know more about how to begin with investments in India:
- Analyse Your Financial Goals
Reasons To Start Investing Today
1. To Keep Money Safe
Capital preservation is one of the primary objectives of investment for people. Some investments help keep hard-earned money safe from being eroded with time. By parking your funds in these instruments or schemes, you can ensure that you do not outlive your savings. Fixed deposits, government bonds, and even an ordinary savings account can help keep your money safe. Although the return on investment may be lower here, the objective of capital preservation is easily met.
2. To Help Money Grow
Another one of the common objectives of investing money is to ensure that it grows into a sizable corpus over time. Capital appreciation is generally a long-term goal that helps people secure their financial future. To make the money you earn grow into wealth, you need to consider investment objectives and options that offer a significant return on the initial amount invested. Some of the best investments to achieve growth include real estate, mutual funds, commodities, and equity. The risk associated with these options may be high, but the return is also generally significant.
3. To Earn a Steady Stream of Income
4. To Minimize the Burden of Tax
5. To Save up for Retirement
6. To Meet your Financial Goals
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Understood What Is Investment Now Get Started
Now that you know what is investment definition and role, and about a few plans, and its benefits start early for maximum benefits. Choose the right plans and track your portfolio for ensuring high returns. So, find out what is investment meaning for yourself by putting your money in different options and see them grow.
Investment in market linked investment plans are subject to market risk. We suggest to consult your financial advisor before investing.
When Should You Invest
Some people waste many years of their life thinking over what is investment and figuring out the investment objectives and how it is beneficial. They hesitate to consider investment meaning for wealth creation because of the involvement of risk. However, many investments are also risk-free, and some carry only little to moderate risk.
When you are young, it is best to fully understand about what is investment meaning and its role and then start. At an early age, you have few responsibilities and, thus, have a better tendency to experiment with different investment and leverage those, which suit your requirements best.
Investing early is also better because of the compounding benefits on investments that help grow your money. With more years ahead, you can reap maximum benefits on your investments, provided you first understand and evaluate different aspects of what is investment meaning and then start early.
When you are young, it is best to fully understand about what is investment meaning and its role and then start. At an early age, you have few responsibilities and, thus, have a better tendency to experiment with different investment and leverage those, which suit your requirements best.
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Saving Vs Investing: An Overview
The words saving and investing are sometimes used interchangeably, but when it comes right down to it, we should be engaged in both to secure our financial future.
A shared characteristic of both saving and investing is the utmost importance that they play in our lives. If you are not doing either, the time to get started is now. This may require changes in spending, tracking, and in the utilization of your income, but it can and should be built into your plan. A general rule of thumb is saving should be short-term while investing should be long-term. Keeping that in mind, lets review the differences. Also, keep in mind for both saving and investing that when risk goes down, liquidity goes up and vice versa.
