Investment
Investment means purchase of an asset, old or new, by an individual or a corporation. Occasionally, the term might be restricted to the purchase of an asset on the Stock Exchange. The placement of a particular sum of money in business ventures, real estate, or securities of a permanent nature so that it will produce an income is generally termed as Investment.
In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price.
There are many different types of investment. Broadly speaking, they fit into four asset classes:
» Short term deposits
» Bonds
» Property
» Stocks
Short term deposits:
Bank savings accounts: The simplest kind of short term (or cash) investment is a savings account. Returns are low compared to other investments, but returns are guaranteed by the supplier - so your investment won't drop in value in the short term like others might. You can withdraw part or all of your money whenever you want.
Bank fixed term investment: You give the bank a lump sum for a set period (a fixed term) usually three, six or 12 months. Your money is locked away for the fixed term. In return, you get a higher interest rate than you could get in a straight savings account. You may be able to withdraw your money, but you will get a lower rate.
Bonds:
When you invest in a bond, you are loaning a company, government or municipality a sum of money in return for income. In return for the loan, you get an interest rate payment and a promise to pay the loan back. And because the borrower gives you a promise to pay it back, a bond is still considered a conservative investment. Different types of bonds are like: Treasuries, Government Agency Bonds, Municipal Bonds or "munis", and Corporate Bonds.
Property
Owning property rented to individuals or businesses can be a safe and profitable investment. Returns from property investment come from rental income, after deducting expenses, and from the increase in the value of property over time. Generally, investing in real estate gives you access to two benefits:capital growth and the tax advantages associated with negative gearing. An investment property that's negatively geared is purchased with a loan that has an annual net rental income amount that is less than the annual interest paid on the loan, plus the deductible expenses associated with maintaining the property.
Stocks
Corporations divide their ownership interests into segments, or shares of stock. Publicly traded corporations offer shares of their stock for purchase to the general public. When you invest in stocks, you become an owner of that company, with all the rights of ownership. Unlike bonds, shares of stock have no maturity dates or required interest payments. Stock investors are usually looking for company growth, which tends to drive up the share price of the company stock.
