What does investment mean?

To be honest, before I learn to invest my money. I never understand the word investment, really. I even ask my brother who is an accounting student at the time I ask him. I tried to understand but it never sink in to my mind.  All I know is that investment is  a business that's all nothing more.

Investment, as the dictionary defines it, 

•  is something that is purchased with money that is expected to produce income or profit.
• use of money for future profit: the outlay of money, e.g. by depositing it in a bank or by buying stock in a company, with the object of making a profit 
• money invested: an amount of money invested in something for the purpose of making a profit
• something in which money is invested: something, e.g. a company, endeavor, or property, that money is invested in with the goal of making a profit 
• contribution to activity: a contribution of something such as time, energy, or effort to an activity, project, or undertaking, in the expectation of a benefit 
• purchase: a purchase, especially something that somebody should be able to use for a relatively long time

Three Types of Investments.

Source: www.flickr.com/photos/26373139

A. Lending Investments.

General types: Bonds (Government bonds, corporate bonds), Bank deposit (Savings , Time Deposits), Pension plans (In general).

How it works: The money you invest is given to borrowers as loans. You earned from the interest charged to the borrowers for the use of your money.

Recommended for: Those who need regular and definite income: those who are fifty years old or older who can take less risk.

Return: Relatively low for the short-term but exceeds inflation rate in the long term. The money you make is called interest.

B. Ownership Investments.

General types:  Stocks, mutual funds, unit investment trust funds (UITF), Real estate, own businesses.

How it works: These investments make you a part owner of the business or company which receives your money. You need to sell before you realize your gains or losses.

Recommended for: Younger investors in their thirties to late forties.

Risk: High. You make money if the business or company goes up in value and vice versa. You gain or lose money only when you sell.

Returns: Historically the highest. given enough time. Your return is in the form of dividends or capital gains.

C.  Speculative Investments.

General types: Investment in assets, properties or businesses that may be illegal or at best, questionable. Another type is when you engage in gambling activities like the lottery.

How it works: The asset/property/business usually has vague and incomplete information on how it can generate profit. You hope and take the chance that it will eventually increase in value and give you bigger returns when you sell it. You place a bet or buy a lotto ticket hoping you will win.

Risk: Very high. How the asset will appreciate is uncertain, more likely dependent on chance, and is affected by so many factors beyond anyone's control. You have to be prepared to accept total loss.

Returns: You earn only if you are able to sell your investment, or win more money. Generally, speculation is for the short term only. You expect to cash-in in a very short period, like a few months or maybe at most one year.

Remember! Every investment has to be studied in terms of three important criteria: Risk, Return and Liquidity. Choose investments with returns of 2 to 4 percent above the annual inflation rate. Do not be too attracted by unreasonable high returns, Generally anything more than 2 percent per month is highly questionable. And finally remember this: The higher the returns the higher the risk.

Source: Making your money work by Francisco J. Colayco

Source: www.flickr.com/photos/26373139

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Disclaimer: Investing involves substantial risk. Neither the author, the publisher, nor any of their respective affiliates make any guarantee or other promise as to any results that may be obtained from using this blog. No subscriber should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research and due diligence, including carefully reviewing the prospectus and other public filings of the issuer. To the maximum extent permitted by law, the author, the publisher and their respective affiliates disclaim any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations in this blog prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.