Investment concept in simple words

It is possible to increase the profitability of an enterprise and increase personal capital by investing free funds in new projects. Investments can also become unprofitable if the owner of the funds chose the wrong direction.

Investment concept in simple words
The easiest way to understand what an investment is is using bank deposits as an example. The owner of the money entrusts his savings to a financial institution for a certain period. At the end of the agreed period, the funds are returned to the investor, and the interest for their use is paid. This option is as safe as possible, because the bank independently finds projects on which it earns from borrowed funds.

Investment activity carries great risks if one approaches investments without a thorough audit of projects.
The most popular areas for investment:

Purchase of land plots.
Acquisition of real estate, including non-residential / industrial premises.
Reconstruction of existing buildings, their major overhaul.
Investments in a ready-made business (own or someone else’s).
Purchase of copyrights, patents, licenses, and other intangible assets.
Not all types of investments are available “directly” for private investors. As in the case of a bank, there are organizations that raise funds from individuals, which, as they become available, are distributed among the funded commercial projects.

The difference between financial and real investments
There are many ways to invest. In addition to purchasing equipment for expanding production, residential real estate for its subsequent lease, there is an option to purchase securities – stocks, bonds, bills. The latter requires the investor to have a good knowledge of the financial market, the influence of various fundamental processes on the rise / fall in the value of purchased assets.

Investments are returned gradually, depending on the profitability of the project.

All types of investments encountered are divided into two conditional groups:

Real. Investments in inventories, fixed assets and intangible assets.
Financial. They become an independent form of investment through the issuance of shares, bills of exchange, and other securities presented on the market in the form of a “commodity”.
The first option is more common in commercial organizations, where the profit can either be displayed in the form of profit or be invested in the development of your own company or in the opening of new areas of activity. The second option is more suitable for private investors. When investing in securities, the risks of incurring significant losses are lower, since professionals actually manage the funds.

Investment attraction options
Over time, any enterprise is faced with the problem of falling profitability. If this factor is not calculated in advance, management may face the fact that the only option is to liquidate (bankrupt) the company. This can be avoided with timely modernization / reorganization of the company or expansion of activities. But all this requires the attraction of additional funds.

According to the source of income, investments are divided into the following categories:

Private. You can count on them if you organize the issue of the company’s shares, ensure their entry to the market, and create attractiveness for investors.
State. Local and federal authorities are usually interested in the development of innovative activities, therefore, they subsidize certain areas at the expense of public funds.
Foreign. May be needed to expand activities abroad or to receive funds at reduced interest rates, which is more typical for European / American banks.
Regardless of the source of financial support, a preliminary audit of the project is required, the calculation of probable profits, including taking into account all possible risks. Based on a detailed study, a decision is made on the profitability of the proposal.

Drawing up an investment portfolio
The smallest risks can be guaranteed only by dividing investments between several types of assets. Moreover, it is recommended to select high-risk species with the likelihood of obtaining large profits in a short time, along with less risky options, where the stake is placed on stability (albeit with a lower level of profitability).

The return on investment depends on the literacy of the choice of financed projects.

When selecting assets for investment, the following indicators are assessed:

Difficulty in assessing profitability / risk. Both the availability of data on the previously obtained profit and the ability to predict the further development of the situation play a role.
The degree of risks (directly affecting the level of income).
Investment costs. This takes into account the minimum share required to invest in an asset (starting amount).
Liquidity. Assess the possibility of selling assets at market prices in crisis situations.
Income predictability. The degree of “transparency” largely depends on the knowledge of the investor himself, how much he understands external / internal factors that affect the value of assets.
The declared profitability of the project remains the key parameter. Its average value in the investment portfolio allows you to compare it with the total risks, to select such a list of instruments so that in case of negative developments, the investor would receive at least a minimum profit.

Investing in shares
Business investment usually requires a large investment. Not every private investor, even in conjunction with government subsidies, can meet the needs of a startup or a modernized production of a company with experience. Therefore, they are trying to find a way to attract investment that is available to owners of modest savings.

The equity principle of investing allows you to start with a small amount.
Examples of equity investments:

Share in the authorized capital of LLC. The investor actually becomes a co-owner of the business. The percentage of profit is not known in advance, it all depends on the success of the business manager.
A block of shares in a large enterprise. The investor purchases the amount for which he has enough funds. The value of each stock is constantly changing, you can get a profit on the fall / rise in the price.
Shares of investment funds (UIF). The owners of the association themselves are looking for the most profitable ways of making a profit, investors are usually not notified of the details, but only receive final reports.
When investing in a mutual fund, data on profitability for previous periods are usually available. But it should be borne in mind that the presence of a profit in past activities does not in any way guarantee its receipt in the future, the risks of loss are always present.

Investment risks
Despite the statements about the guarantees of making a profit on any investment, most of the proposals still contain risks. They can be of an internal or external nature, so not all dangers are predictable. The problem is partly solved when drawing up an investment portfolio that allows you to reduce the likelihood of losses.

An unfavorable market situation can lead to losses.

Depending on the type of investment, there are risks of the following types:

Liquidity risk. Interest in the asset could drop sharply, and its value will be significantly lower than the purchase price, regardless of the state of the current market.
Inflation. The purchasing power in the market may decline so much that all assets will lose a large percentage of their liquidity.
Currency. If assets are related to foreign currency, devaluation in the domestic market leads to a decrease in the value of assets in ruble terms.
Legal. Changes in the regulatory framework can reduce / increase the risk of incurring losses.
There are man-made, natural factors, but they are initially attributed to force majeure and are prescribed in contracts as separate clauses. The rest can be “adjusted” with constant monitoring of changes in the financial market (domestic, global), with timely adjustments to the investment portfolio as new laws come into force.

Safe investment rules
It will become easier to reduce risks if, at the stage of portfolio planning, the use of investment rules is envisaged. They are versatile and allow you to reduce the risk of investment to a reasonable minimum. This option cannot be completely ruled out.

Investment security depends on the depositor’s compliance with the basic rules.

The following principles are best known:

It is accepted to invest only free funds. Loans should be excluded from the portfolio due to excessive risk.
It is necessary to clearly draw up a list of objects where it is planned to invest money.
Equal investment of funds in various assets is recommended.
Before investing, you should carefully study the projects, including feedback from investors from previous periods.
Profits up to the full return of the initial investment should be accumulated until the investment portfolio reaches 100% profitability.
You cannot give in to excitement and transfer a large amount of money to the most risky projects, even if they showed high profitability in previous periods. No one will ever be guaranteed to predict the level of profitability of any business.

Investing in real estate
Buying apartments or private cottages for the purpose of their further leasing has a number of advantages and disadvantages. The same applies to the acquisition of office or industrial buildings. The risks of investing in real estate are reduced to an increase in the cost of housing and communal services, the level of taxes and other fees. Housing prices and real estate in general are relatively stable, the liquidity of this asset does not change significantly.

But there are many options for making a profit:

Daily or hourly apartment rent.
Organization of a guest house / hostel in a house or apartment.
Renting out a garage, office / industrial space.
Buying mortgaged or arrested real estate (usually at a discounted price) and resale at a retail price.
Purchase of housing without repair, sale after self-restoration.
One of the most popular areas is investment in capital multi-storey construction at the “foundation pit” stage and the subsequent sale of finished apartments at an increased price. In any case, a substantial amount will be required, here it is not always possible to do without borrowed funds.

One of the options is to find a company offering equity participation. In such projects, other risks arise: fraud, external circumstances of a natural and man-made nature (earthquake, hurricanes, etc.).

Investing in gold and other precious metals
The advantage of investing in gold, silver, platinum and other precious metals is the preservation of their liquidity for a long time. Changes in the political system or financial crises in the global market have practically no effect on the value of assets. In certain periods, the price may fall, this should be used to find the most favorable moment for the purchase.

Investments in precious metals have the following characteristics:

Unlimited shelf life of assets, there are no risks of damage to metals due to corrosion, atmospheric influence.
The need for security. The value of assets makes you think about their safety from theft.
Versatility. Gold, platinum and other metals are liquid in any country.
You can also note the complete independence of investment in precious metals from the political and economic situation in the country. All metals allow you to choose the amount of investments according to the availability of free funds, including the possibility of purchasing additional assets.

Investments on the Internet
If we cut off the obviously losing options like HYIPs, there are still a large number of ways to invest via the Internet. Each of them only requires access to the network and a personal computer. Almost every bank and electronic payment systems allow online transfers without visiting offices.

The most common options are:

Forex trading.
Binary options trading.
PAMM accounts.
Contributions to microfinance organizations (MFOs).
Investments in online stores.
Purchase / sale of cryptocurrency.
The best option is to distribute funds among several instruments. When compiling an investment portfolio, it is worth considering the difference in the minimum bar for different deposit options.