Introduction
Investment is a term used by different people to mean different things but on the financial aspect is the act of acquiring or purchasing a product that has value with the aim of getting profits or returns in future. Investment can take different aspects, for instance, the financial aspect whereby one can invest in financial services like bonds and securities. It can also be based on acquiring assets of value for production to gain profits. All these are different kinds of investments it only depends on individuals on choosing the suitable investment method. (FinanceMind, n.pag.)
Objectives of investment
In the current world, the purpose of investment to many people change over time based on circumstances surrounding such a person; for example, a family man can decide to invest in assurance policies for a given period to educate his children. The moment he is through with education he can decide to invest in a property, this shows that the investment objectives are not tied in one area they vary with people and their needs. (Oracle ThinkQuest, n.pag.)
A young person can be more interested in capital appreciation since he is young and energetic but as he or she climbs the ladder of age this may change and he or she may start thinking of investment ways that will enable him to gain income. This shows that the objectives of the investment may vary from one person to the other based on various issues at hand.
Types of investments
There are many kinds of investments and they can be categorized into four classes
- Short term deposits
- Bonds
- Property
- Shares
Based on the four classes different investment options suit different people based on the risks involved, the period of investment and the gains expected from the investment. Under the period of investment, there are those investments that take a long maturity term while others a short term. Based on the objective of the investor one chooses the period which he or she is comfortable with. (Oracle ThinkQuest, n.pag.)
Risks involved, under this aspect different investment portfolios have different risks that are involved therein. There are those investment options that have high risks while others are minimal. Based on the ability of a person to handle the risks one chooses an option that best suits him or her. In most cases, you find that investment options with high risks present high returns as compared to the ones with low risks. (Oracle ThinkQuest, n.pag.)
Gains or returns expected; many people make investment decisions based on the returns they expect to gain at the end. This is important since when investing one should set a goal of what he or she expects to gain at the maturity of the investment.
Short term deposits
This refers to investment options that are short term in that the investment period is short and one can access the gains after a short period.
Bank savings accounts
This can be termed as the simplest way of saving since it involves opening a bank savings account and making cash deposits in that account. This is the simplest because it does not require much it’s only making cash deposits in the account. The returns or gains from this kind of investment are low as compared to other kinds of investment. Though the returns are low there is an assurance of getting your returns at the end of the given period. The other important thing concerning this kind of investment is that the value of the investment does not decline as compared to other short term investments. (FinanceMind, n.pag.)
The option allows one to access all the savings he or she has made whenever that person wishes. This makes it viable for making savings that are short term, for instance making saving to carry out a certain project over a short duration of time. It is also viable for raising emergency funds to incase anything that comes in one’s way is unexpected. (Sorted.org.nz, n.pag.)
Bank fixed term investments
This refers to a mode of saving whereby you deposit a huge sum of money in a fixed account over a given period. You have the freedom of choosing the period you want to invest, over the given period you can’t withdraw the amount. This option offers higher interest rates as compared to a bank savings account. It is a viable investment option over a short period of time-based on one’s needs and the interest rates which are offered since they keep on changing. (Economy Watch, n.pag.)
Bonds
Bonds are usually given out by companies and governments to the public, people interested give out money to the company for a given duration of time and the company promises to pay the person a certain interest rate. When the agreed period is over the bond matures and the investor is repaid the amount together with the interest accrued over the given period. An example of a bond is the debentures offered by companies. (Sorted.org.nz, n.pag.)
Property
This involves purchasing properties that have value and which you can resale at a higher price to gain back your investments. An example of a property is purchasing of land or a plot, one important thing with property is that it appreciates over time. When you purchase land today after ten years the value may be more than double the buying cost. This shows that property is one of the viable investment opportunities over a long period since the appreciation value is very high. (Sorted.org.nz, n.pag.)
Rental property is another viable investment under property; this is because having a property that is rented to people can be a secure and profitable way of investing. This is because you will gain profits although from the property as long as it is in good condition. Most of the people termed as successful investors in the current world are the ones investing in rental property. (Economy Watch, n.pag.)
Shares
The purchase of shares of a certain company gives the investor rights ownership in that company such that one can gain income from it. People who invest in shares gain returns in the following ways; through dividends, dividends are paid by the companies to shareholders from the profits the company gains. Shareholders can benefit also through capital gains, this means that at times an investor can sell his or her shares at a higher rate than he purchased hence acquiring the gains. (Economy Watch, n.pag.)
However, as the shares can gain value over a certain period in the same way they can lose value; it is advisable to sell your shares when they have high value and to buy more when the value is low. The value of shares changes over a very short period hence it is important for an investor to monitor the movement of the shares, today the value may be high and tomorrow be the opposite. (Sorted.org.nz, n.pag.)
Because of the way the value of shares keep on changing it is important not to make short term investments. This is viable for a long term investment since you can monitor the period when the value is high and sell your shares.
Investment risks
Every investment has risks involved with it and it is obvious that there is no gain without risks. Because there are risks involved in investing it is important to identify the kind of risks and how to manage the risks. (Sorted.org.nz, n.pag.)
Business risk
This is the common kind of risk many investors incur in the period of their investment. It involves the loss of value of investment because of factors such as competition. Whenever there is competition there are chances of losing, competition may be very high in the investment option you have chosen and may end up losing the value of your investment. Mismanagement also contributes to business risk in that the finances in certain investments may be mismanaged hence resulting in a loss. The other factor is financial insolvency; you can invest in a company in terms of shares and the company might collapse hence loss of the investment. (Kennon, n.pag.)
Valuation risk
It is possible to invest in a company that is overvalued, when the company is valued everything seems excellent but it may not deliver what you expect from it. Before you decide on any investment option carry out a study of the exact value of that company or investment opportunity to avoid the risk of losing. (Kennon, n.pag.)
How to handle investment risks
Investment is very important and as many investors know it has its risks which one has to beware of before deciding on the investment option to take. Since these risks are there and are inevitable some ways can help in minimizing the risks. The first thing is the diversification of risks which has helped many investors to succeed. This works in a way that you do not make your investments in one place, try investing in different areas. This is helpful since in case one area fails you have another investment that still stands. For instance, when buying shares you should not invest all your finances in one company instead buy from different companies to reduce the risk of loss. (Kennon, n.pag.)
Conclusion
Investment is very important since it offers protection for the future and there are very many different investment options in the market. It is upon one to choose the one which best suits him or her. On the other hand, one should make a wise decision on investment options since they all have different risks involved with them. When investing research on ways which help in the management of investment risks.
Works Cited
Economy Watch. Investment and investing, 2010.
FinanceMind. Types of investment, 2010. Web.
Kennon, Joshua. The 3 types of investment risk, 2010.
Oracle ThinkQuest. Types of investment, 2010. Web.
Sorted.org.nz. Investment types, 2010. Web.