What is Investment – Types of Investment, Why, When, How Much and Where to Invest Money?
Learn What is Investment – Types, Why, When, How Much and Where to Invest Money? Best Investment Portfolio Management Strategy.
What is Investment?
Investment is not just an accounting term in economics. It is of great importance in a person’s life and an important part of Financial Portfolio Management Strategy.
“Investment is putting your saved money at the place to make more money.”
We all earn money and have our own expenses. At the same time, we also try to save some of our income for our future objectives. This saving can be kept in bank or invested somewhere to make more money to get rich.
Investing is not gambling. It is all about making wise decision and taking reasonable calculated risks to earn profit and make more money. Investing is a method of purchasing assets to gain profit in the form of dividends, interest, or rentals.
Examples of some good investment options are – shares and equity, bonds, mutual fund, real estate, bank fixed deposits etc.
Read:
- Portfolio Vs Age – Portfolio and Age Relationship
- Best Investment Options for High Return
- Diversified Portfolio – Why?
Why Should I Invest Money?
In very simple words, everyone should invest some portion of their saving to help the money grow. You investment can shield you against rising inflation.
In order to compete with the ever growing rate of inflation, you must invest in a plan so that it gives a return which is more that the rate of inflation. When the rate of return on your investment will be more then the rate of inflation, then you will have good surplus over a period of time.
You can invest your money in stocks, bonds, mutual funds, real estate or certificates of deposit etc. But your motive should be to create wealth for your retirement, for your future and for other expenses like marriage, higher education and college fees, vacations and so on.
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- What is Equity Investment?
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- Best Investment Options for Senior Citizens
Video: 10 Reasons to Invest in Stock Market
Learn why I or you should save money from our Income and Invest in Stock, Business, Land and Property, Bank Fixed Deposit (FD) or any other Investment – Top 10 Reasons to Save and Invest.
When to Start Investment?
When to invest money? Well, the answer is very simple. The sooner you start investing money, the more time you allow your money to grow. Early investment means that you are allowing your money to get compounded and multiply. Compounding interest adds to your income by accumulating your earnings and dividends.
Share market is a world of unpredictability. Here are 3 basic and golden rules for all investors:
- Invest early;
- Invest regularly; and
- Invest for long term.
Many people just wait for the “right time” or “best time” to invest. What they don’t understand is that the risk of waiting can be more than potential rewards of early investment. Compounding is a very powerful tool to grow money.
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- How to Set Investment Goals?
- How Much Money to Invest in Stocks and Mutual Fund
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What is Compounding?
Compounding is growth by reinvestment of returns earned on savings. By means of compounding, you not only earn income on the original amount but also on the reinvestment of dividend / interest accumulated from your original investment over the years.
The power of compounding is one good reason to start investing early. The earlier you start investing, the more money you will make. The longer you leave your money invested at higher the interest rates, the faster your money will grow.
If you plan to invest in share market, then invest in stocks with a long-term prospective. The general upward momentum of the economy mitigates the stock market volatility and the risk of losses.
Types of Investment – Where to Invest Money?
There are a number of investment options. Following types are few of them:
S. No | Investment Type | Return |
1. | Stocks / Shares | Dividend and Capital Appreciation |
2. | Mutual Fund | Dividend and Capital Appreciation |
3. | Bond | Yield |
4. | Bank FD | Fixed Interest |
5. | Real Estate | Rental Income and Appreciation |
I will explain all the above options in details in upcoming articles.
Also Read:
- Best Investment Options in India for Young Age Adults
- Stock Market Terminology for Beginners
- Top 5 Reasons to Invest in Stocks
For How Long Should I Invest?
For how long should you invest depends on your needs. Do you need the money after 3 months, 6 months, 1 year, 2 years, 3 years or after that period. It all depends on how much time you can spend on investing.
Your investment period also depends on few other factors –
- How much time can you allocate for the purpose: Are you too busy to give too much time to your investment portfolio? You can give enough time or spend few hours a week or month.
- When do you need the money?
To decide how much time you must allocate your investment to help it grow, you need to look at various options and how they have performed in the past and how much return have they given.
Most experienced investors invest their money in stocks and bonds for long-term. If you have idea of return on these types of options, you can decide for how long you need to invest your money.
Also Read:
Investment FAQs
What is Investment and its Types?
I have already Explained it Here: Types of Investment
What are the 4 Types of Investments?
4 Types of Investment are:
- Growth Investments: These are long-terms investments for capital appreciation. Examples - Growth Stocks, Real Estate Property.
- Defensive Investments: These are Low Risk Regular Income Generating Investments. Example - Cash Investments and Fixed Interest Investments.
- Cash Investments: Defensive Investment. Examples - Savings Bank Bank A/Cs, Term Deposits.
- Fixed Interest Investments: Defensive Investment. Examples - Government Bonds.
How do I invest my Money?
- Decide on the Type of Investment you want to make - Growth (Long-Term Stocks or Real Estate) or Defensive (Cash or Interest Investment).
- In order to Invest in Real Estate Property, you will need huge finance.
- For Investment in Growth Stocks, you will need a Demat Account with a Trading Account linked with a Bank Savings A/C.
- For Cash Investment open a Bank FD to earn Interest.
- For Fixed Interest Investment, buy Bonds.
How do Beginners Invest?
Beginners can start with Low-Risk Investment Options such as Mutual Funds via SIP or Cash Investment such as Bank FD. Once they gain knowledge and experience, they can shift to much complex Growth Investment Options.
What is Difference Between Savings and Investment
Savings | Investment |
It the money you set aside from your income for some particular goal like - Emergency, Education for Children, buying a car, tour or travel etc. No Risk, Less Growth. | Putting your money at a place to allow it to grow and provide returns. Returns can be used for bigger financial goals like - Buying a house, higher education for children etc. High Risk, High Return. |
Types of Investments Based on Risk Profile
Low Risk | Medium Risk | High Risk |
Less-Risk, Less-Returns. Examples - Govt. and Corporate Bonds, Treasury Notes, Bank FD. | Moderate-Risk, Moderate-Return. Examples - Preferred and Utility Stocks, Income Mutual Funds. | High-Risk, High-Returns. Examples - Equity Investment, Mutual Funds, ULIPs.etc. |
Life Stages and Investment Plans
- First Job: This is First Stage and START of investment journey for Beginners. Since, you have limited income and savings, you need an affordable Investment Plan that does not require Lump Sum Money. Few good Investment Options for People with First Job are - SIP in MFs, ELSS (equity-linked savings scheme), ULIPs and Term Insurance.
- Marriage: This is the second stage of life. You need to focus of family planning, healthcare and other long-term goals. Few good Investment Option for people in this very important stage of life are - Personal and Family Health Insurance, PPF (Public Provident Fund), ULIP (Unit Linked Insurance Plan) and NPS (National Pension Scheme)
- Child Birth, Buying a House, Children Education: This stage of life demands long-terms Investments to make life secure. Few good Investment Options in this Stage are - ULIPs and Savings Plans.
- Retirement: This is the 4Th stage of Life and Investment. You cannot take high risks. Investment must be safe and secure. Few good options are - Money Back Plans, Bank FD, Immediate Annuity Plans and Unit-linked Retirement Plans.
Learn:
Conclusion
To conclude, I will say that the early you start investing your saving, the more time you allow your money to glow. Allow the Power of Compounding to grow your money and secure your Future and Family.
I hope you liked this Article. If Yes, then do share this with others. Thanks!
Also Read:
- What is Demat Account?
- Top 10 Companies in India by Market Cap
- Introduction to Stock Market in India
- How to Save Money?
- Top 10 Semiconductor Manufacturing Companies in India
- How to Invest Like a Professional Expert?
- What is Net Present Value (NPV) and How to Calculate
- Top 10 Investment Banks in the World
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