wealthfactsheet-investment

What is Investment?

Investment is the choice by an individual to risk his or her savings with the hope of gain or profits. Rather than store the good produced, or its money equivalent, the investor chooses to use that good or money either to create a durable consumer or producer good, or to lend the original saved good to another in exchange for either interest or a share of the profits.

In the first case, the individual creates durable consumer goods, hoping the services from the good will make his or her life better. In the second, the individual becomes an entrepreneur using the resource to produce goods and services for others in the hope of a profitable sale. The third case describes a lender, and the fourth describes an investor in a share of the business.

The term "investment" is used differently in economics and in finance. Economists refer to a real investment (such as a machine or a house), while financial economists refer to a financial asset, such as money that is put into a bank or the market, which may then be used to buy a real asset.

People or entities who invest are called investors. The profits they get from their investments are what we call, returns. And returns are usually calculated in percentage terms. However, every form of returns there is an opposite reaction, and it is risk. Which means for any kind of investments, you would desire a kind of returns for your investments, but also there is the risk factor or element in it.

In layman terms, if you want a higher returns on your investments, you will need to accept a higher risk and the other way round prevails.

Types of Investment Insturments

Types of Investment Terms

The following are the types of investment terms that are used in the world today. To familiarise yourself with these terms will put you in good stead because you will understand what these terms mean.

Types of Investment Styles

There are also various types of investment styles. Whether it is an individual investor or a financial institution or even business entities, they all use any of these kinds of investment styles. They are:

1.	Value - This kind of investing usually happens in a prolong down trend or an economic recession. Value investors look for bargains in the market and would usually buy and hold for long periods. Well-known investor Warren Buffett is a classical example of a value investor. The usual valuation tool a value investor would use is the PE Ratio. The lower the PE ratio the better it is. Of course PE Ratio is not the only decision making tool when buying, there are also other fundamental methods to determine the buying decision.
2.	Growth - Growth investing means looking for companies that have the potential for growth. Companies or businesses which have the potential for growth usually will reap good returns over a long period if the investor can find the right stock. Usually the fundamentals of the company or business must be good. The usual valuation tool used to determine which stock to buy is the EPS or Earnings Per Share or DDM or Dividend Discount Model. The higher the firms earnings the better will be the price of the stock in future.
3.	Top Down Approach - This method is usually done by fund managers because top down approach means looking first at the bigger picture. This means on the macro-economic factors such as the global conditions, then to regional before narrowing down to which countries to invest in. Once the country is determine, the next would be to approach the relevant industry or sector and then finally to the individual company. Top-down approach is usually tedious and time consuming, therefore it is usually the fund managers who have the relevant resources who does this.
4.	Bottom Up Approach - Bottom up approach is the opposite of top down approach. It targets the company first before checking on all the other relevant factors. The last would probably be the region or the global economic climate.
5.	Technical - Technical analysis as the term technical suggest, everything in the analysis is technical. That means it uses charts, occilliators, trends and tries to study and determined whether to buy or sell a stock or a financial instrument. They do not scrutinize the individual stock for the data which they have but rather they look at what the sentiment of the market is on the stock through technical analysis before deciding to buy or sell.
6.	Fundamental - Fundamental analysis breaks down the company into many forms to see if it is worth the while to buy. The usual datas that are very important are the Porfit & Loss statement, balance sheet, PE Ratio, EPS and of course the Management or CEO's statement. A fundamental report is usually very tedious to compile, therefore there are analyst who specialises in gathering fundamental datas and crunching them into a report.
7.	Long - This method is the most common of investing methods. You buy into a financial instruments and you look to sell it at a later date or time. The logical approach is that you have to buy at a lower price and sell it at a higher price to make some profits. If you were to buy it at a higher price and sell it later at a lower price, there would be realised losses.
8.	Short - Shorting is a method which is the opposite of Long. That means that you sell a financial instrument first and then you buy it back at a later date or time. But when you sell first, you have to sell at a higher price and buy back later at a lower price.
9.	Trading - It means that the purpose is to get quick profits from an investment position and regularly. The investment is usually held for a shorter period of time such as day, days or weeks. Some even hold even for shorter periods such as minutes or hours.
10.	Investing - It means that the purpose is to grow the money we have. The investment is usually held for longer periods such as months or years.

1.	Equities
2.	Bonds
3.	Treasury Bills
4.	Fixed Income Securities
5.	Money Markets
6.	Options
7.	Futures
8.	Commodities
9.	Forex, FX, Foreign Exchange
10.	Treasury
11.	Arbitrages
12.	Mutual Funds/Unit Trusts
13.	Hedge Funds
14.	Contract For Difference (CFDs)
15.	Collateralised Debt Obligations (CDOs)
16.	Credit Default Swaps (CDSs)
17.	Spread Betting
18.	Real Estate
19.	Collective Investment Schemes
20.	Pension Funds
21.	Savings
22.	Fixed Deposits/Time Deposits
23.	Business
24.	Insurance

1.	Returns - ROE, ROI, ROR, Compound Interest, Risk Free Rate
2.	Risks - Systematic, Unsystematic, Standard Deviation, Beta
3.	Portfolio - Asset Allocation, Diversification
4.	Assets - Dividends, Profits, Capital Appreciation Real Estate, Savings, Investments, Businesses
5.	Economics - Inflation, Deflation, Stagflation, Consumption, Spending, GDP, Monetray Policy, Fiscal Policy
6.	Business Management - Accounting, Balance Sheet, Profit and Loss statement,
7.	Valuations - PE Ratio, EPS, DDM, NPV, NFV, ROI, ROE, ROR