What is an investment?

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There are so many different investment strategies, investment options, investment jargon, and investment ideas, that a novice investor can become confused and discouraged before ever getting started. Before an individual can delve into beginner investing strategies, I think it’s important to define what an investment really is and the benefits of investing properly and strategically.

An investment is any vehicle into which funds can be placed with the expectation that it will generate positive income and/or preserve or increase its value. With this definition in mind, it’s important to find the best investment that will generate positive income (or hold its value) and that involves a level of risks you’re comfortable with.

There are many different investments that an individual can choose to invest funds in. Securities are stocks, bonds, options, futures, and swaps. Stocks represent ownership and can range from very risky stocks (penny stocks) to relatively safe dividend stocks. Choosing the right stock to invest in can seem like a complicated process, but to simplify it, there is one golden rule that an investor can implement to get started: “select the investment vehicles that offer the highest return for the level of risk that you’re comfortable with.”

Bonds are publicly traded debt securities whereby companies borrow money from investors and agree to pay a fixed amount of interest periodically and the principal amount at the time of maturity. The attraction to bonds for many investors is that there are considered a “less-risky” investment than stocks. Investors who are risk inverse tend to formulate an investment portfolio that is heavily invested in bonds and other relatively safe assets.

Mutual Funds are very ...

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...used to place funds with the expectation of generating positive income and/or to preserve or increase its value. Although the preservation of funds is not as exciting as receiving big returns or investments, it’s important to acknowledge its importance. Maintaining value is certainly better than losing value, so it’s important to choose investments that offer the best possibility to maintain value (relatively safe investments). Remember that in choosing an investment, a good place to start is to select investments that offer the highest return for the risk that you’re comfortable with. Understanding these terms and the available investment instruments is a good place to start for the novice investor. Don’t rush the process, but become as knowledgeable as possible, and you’ll have a greater chance of fulfilling what it means to own an investment – positive returns.

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