Investing refers to a systematic process of earning money from the money that has already been invested in an investment, stock market or real estate property. Investing can be done both by short-term investors and long-term investors. The value of the money being spent at any time depends on the amount of that money being invested. For instance, in stock markets you would be buying shares of stock or a property. To invest is also to put money into the hope of some return in the near future.
There are many ways of investing. It can either be active or passive. With passive investments the investor neither owns the asset nor does he directly receive profits from it. These investments usually involve purchases and sales through banking systems, brokers, financial institutions and sometimes individuals. If you decide to invest, there are a few things that you need to consider before you start purchasing shares or a real estate property.
The first thing that you should look at is the returns that you expect from your chosen investments. This includes the interest rate and the initial investment. Other things that could affect the returns include the amount of the investments and the period of time that the investments will last. Other factors that may affect the return include the risk factor and the number of other people who are investing in the same type of asset. However, with lower risk factor the amount that one can earn could be higher.
When it comes to choosing the type of investing, active investing refers to those types of investments where you make your decisions while keeping an eye on the market, trading hours and market trends to make your investment decisions. While this method is more risky because you are not sure when to buy or sell stocks, you can earn higher returns. Also, with these investments you don’t have to worry about your investments going down as you can keep buying and selling them at higher prices. The major downside with this type of investing is that you are not in control of the stock market. The price appreciation or decline won’t affect you in any way. With this you can see that passive investing may not be for everyone.
A time horizons like five years are considered very long investment horizons, but this may depend on the kind of asset that you are looking at. Long term investments are considered safer because you don’t have to watch the market for too long. Also, if you are investing for the long term, you are better off with bonds, mutual funds, treasury bills and bonds as they give you security but also come with low returns. You can see that this type of investment is perfect for people who have a long time horizon.
Another common method of investing is the holding period or amount of time that you invest. These investments allow you to get higher returns within a shorter period of time. For example, if you invest for five years and get a one percent return, you will have to spend five years holding the investment so it is only worth it if you have a five year time horizon. A holding period of less than a year may not be worth your time, especially if you are already getting high returns on your other investments. Therefore, it is essential that you know how much you are willing to risk on any one type of investment and what your return expectations are.