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Learn to invest

Some economic categories are understandable to most adults. For example: deposits, loans, bank cards. Most use them without preparation. However, self-investment requires some technical knowledge. We will provide you with a general compilation of the private investment options available to the average citizen. We will deliberately simplify some things, everyday descriptions convey the essence faster than scientific terms.

Let’s define the terms

How to define investment in simple terms?
  • An investment is a deposit of money or other valuable assets in a project for profit.
  • The investor is the owner of these assets and the recipient of the profits from them.
  • Return on investment is always associated with an investment. And the investor’s work and other efforts are helpful, but not necessary.
In economics, investments are described as operations difficult. But in practice, this is not particularly so.

What investments are available to the common citizen?

There are many more types of investments now than 30 years ago. We will not create a system from them, but will simply list the options available to the average person and briefly explain what it is about:
  • bank deposits – deposits are known to all in many variations;
  • bonds: purchase of promissory notes from states, banks, and some companies;
  • shares: the purchase of securities that give the right to a share in the property of the company and its income;
  • Buying a stake in a business entity;
  • a private loan with remuneration: when a natural person lends to another with the condition of returning a greater amount;
  • Buying foreign currency is a controversial option that becomes an investment if the purchased currency increases in price relative to other currencies;
  • buying gold and other precious metals in bullion, as well as certified diamonds, becomes an investment when prices rise;
  • The purchase of antiques, art objects, rarities, etc., is an investment for those who know how to sell all this for more than the initial price;
  • contribution to the company itself: relevant for those who are dedicated to the company; This includes the cost of high-speed internet for freelancers, and the purchase of a cow for the milk trade, and the purchase of a pair of purebred dogs for the sale of puppies; the main condition is that the money invested should increase future income;
  • acquisition of rights and intangible assets, from copyrights and patents to permits for certain services to the public;
  • invest money in mutual funds, etc. – nothing is bought directly here, the money is entrusted by a professional investor who invests it for the benefit of the owner, this is also called portfolio investment;
  • trust management: essentially similar to mutual funds, but with a different design;
  • investment deposits in banks – something between a regular deposit and an investment in an investment fund, part of the money remains in the deposit, the other part is invested with the help of the bank;
  • trading on stock exchanges: all types of income-generating transactions for equity with exchange instruments: purchase and sale of shares, bonds, currencies, and other assets;
  • OTC transactions: transactions with various types of financial instruments: currencies, rights off exchanges, most often on the Internet options;
  • foreign investments: this means transactions with financial instruments in the markets of other states;
  • cryptocurrencies: generation, sale, purchase, and other operations with virtual cash;
  • venture capital investments: investments in a not yet developed and promising business (in startups), to become its co-owner (shareholder) or to receive a previously agreed income when the project begins to operate and becomes profitable; They also fall into this category: IPO: the initial purchase of new shares, often at a low price; and ICO: the initial purchase of cryptocurrencies;
  • investment in real estate: purchase of apartments, houses, summer houses, etc. as a long-term investment, for rental or sale after rebuilding and repair;
  • the purchase of any other item of value for sale at a higher price.

What determines the return on investment?

The profit or investment income always depends on three mandatory factors:
  • the value of the investment;
  • the magnitude of the risk of losing profits and the investment itself;
  • knowledge and qualifications of the investor, or those who represent him.
All other aspects are complementary or useful but optional. The risks are a bit more complicated. Because the income promised to investors is inversely proportional to the willingness to invest. There are always enough people willing to make money without risk. Consequently, they are offered the minimum for which they are ready to part with money for a time. Anything that exceeds the income from a safe investment is the risk. For this reason:
  • the interest on bank deposits is less than the interest on bonds;
  • the less stable the currency, the higher the interest on deposits and bonds in it;
  • the independent purchase of shares and other financial assets is more profitable but risky than investing in a mutual fund or trust management;
  • unsecured loans are issued at a higher interest rate than secured loans;
  • Investing in real estate is generally safer than buying cryptocurrencies.
Anything that exceeds the income from a safe investment is the price of risk. For this reason:
  • the interest on bank deposits (their yield under certain conditions is guaranteed by the state) is less than the interest on bonds (they are only guaranteed by the bond issuer);
  • the less stable the currency, the higher the interest on deposits and bonds in it;
  • the independent purchase of shares and other financial assets is more profitable but risky than investing in a mutual fund or trust management;
  • unsecured loans are issued at a higher interest rate than secured loans;
  • Investing in real estate is generally safer than buying cryptocurrencies, etc.

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