What is investing and investments?

An investment is an intellectual or financial input that is aimed at yielding a return at the end of a specified period.

Investments are inputs in tangible or intangible assets to increase their value and earn a profit. If the investment is unsuccessful, part of or all of the investment amount may be lost.

The person or entity making the investment is called an investor.

Types of investments by term

  • Short-term – up to one year
  • Medium-term – from one to three years
  • Long-term – more than three years

Object of investment

  • Stocks – Gains from investing in shares can be in the form of dividends or selling the asset at a better price than the purchase price
  • Bonds – Profit is the receipt of predetermined interest at the end of a designated period
  • Funds, trusts, and hedge funds – Profits from the activities of such organisations are distributed to their clients on a pro-rata basis according to their share of investment
  • Options – They allow an investor to buy or sell a particular instrument at a predetermined price and to make a potential profit, regardless of the fluctuations in the cost of the commodity
  • Commodities – It is about investing in physical commodities traded on a commodity exchange. The difference in purchase and sale prices generates profits

Investment styles

  • Aggressive – an investor invests in risky assets hoping for a high return in a short period. For example, it may be investments in start-ups. With an aggressive investing style, the investment portfolio can change several times over a short period
  • Passive – this entails long-term investing in large companies and derivatives with low volatility. With this investing style, significant changes in the portfolio are rare

How investing differs from speculation and saving

When investing, the financial instrument acquired, such as shares in a corporation, remains in the investor's possession for a more extended period than in the case of speculation. One of the investor's income sources is the dividend payments he receives from the companies in which he has invested.

Speculation is trading assets in the short term to make a quick profit. The possession of a trading instrument can last from a few seconds to several weeks.

Unlike investment, which involves increasing the initial amount, saving is preserving capital at the same level without increasing it.