In a financial sense investing is let your money work for you. When you put your money on some promising thing in the hope of getting more in return, this is called investing.
Money is one of the most basic requirements of modern human society. Every one of us requires it for our daily needs, to accomplish this need we work hard and earn money. We use this hard earned cash for our daily needs and save some part of it as our savings to use it in future.
But if we preserve our hard earned savings as cash, it will shrink in its value due to inflation. To prevent this loss of value in our savings and to create more wealth we need to keep our money working.
That is committing your money to work for you is called investing.
Investing not only protects your wealth against inflation but also earn rewards for you. This reward can be in the form of interest, rent, dividend or appreciation in value.
Investing is a decision that every prudent person has to take in his life somewhere. But the major question is how to invest your money to get the best return from it.
Investing must be done precisely according to your risk factor, future goals and your age. A younger investor can take more risk in his investment decisions than an older one because he can compensate his loses by earning more and by compounding over a long period.
Investing is all about making the right decision. Sound investment decisions can reap incredible rewards for you, but wrong once can cost you your hard earned money.
Investing is a Risk Vs. Reward game
Return is directly proportional to risk in any investment. Every investment bears some amount of risk in it. Risk of losing your money or not getting enough return to accomplish your goals.
No investment is 100% risk-free. But the amount of risk varies between different options. Usually, high return investment options are riskier. That is why safer options like Fixed Deposit, Saving account, Debt instruments, etc. provide a low return as compared to riskier ones such as Stocks, Equity mutual funds, etc.
A smart investor always takes calculated risks on his investment decisions, and this is called risk management. Risk management is an essential thing in any investment. Every investor should have awareness about the risk involved in his/her investing decisions. Without risk management, you can lose a large amount of your hard earned money. Risk management is all about how to get more return while risking less on your investments.
Most common investing options
There are lots of investment options available for investors to choose from. Some are low-risk low return ones while others are high-risk, high return options.
Some of the most common investment options are stocks, bonds, mutual funds, real estate, precious metals, futures & options, etc.
Futures and Options can be hazardous investment products if used by an investor who does not know how to use them. They need much more expertise to deal with in comparison to other common investment options. A beginner should stay away from Futures and Options until they know what they are dealing with.
Bonds and debentures are debt instruments they give you return in the form of interest. They are less riskier than stocks and provide a regular income.
( Read more about common investment options).
So we can conclude that investing is one of the most basic things we have to deal with in our life. It is not limited to just about money. It can be any resource you are committing to earning rewards in return. Spending time to learn something or making efforts to accomplish any work is also investing in different forms.
After all, we aim to earn benefits from our investments it can be in the form of money, education or accomplishment of our works.
Every investor’s investing strategy can be different from others. No matter what approach you choose for your investment goals, you should take your investment decisions wisely and understand the risks associated with them.