What is investment?
Investment is the process of transforming money or resources into an asset, a business or a product with the aim of having profit or an income over a period of time. This article will show you all you need to know about Investment.
In all, investment is making use of money to buy an asset that will yield or appreciate in value over some period of time (it might be month, years). For example of asset that generate a lot of money over time is when you invest in real estate, lands, bonds ,stocks or a business.
If you are interested in investing today, read this article carefully, so as to know the type of investment to do and know how it works. The purpose of investing is to generate a lot of money over time. There is a wise saying “a man is rich by the Investment or asset he has but not the money he has”. So invest today, and have the money you desire.
Types of Investment and How Each Works
1. Real Estate
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How It works:
These works by investing in property you can see and touch such as (land, houses and commercial buildings). Renting, leasing or selling the land, house or property is a genuine way to make money from real estate. You can rent your land to be a car wash center, an event center. Etc. you can also rent your house for Airbnb, or as a rented apartment. You can sell the property after the worth or value has increased. It is an investment that brings continuous income at the long run.
- How to start:
Save with an initial payment, and then you acquire a mortgage if it is needed or you purchase the property (either house or land). If you do not want to own the property directly, you can
Invest your capital through real estate investment trust “REITs” (is a company that makes use of pool of investors’ money to buy and manage real estate to generate income.)
2. Stocks (Equities)
- How it works:
Shares are the act of owning a part of the company, so as the company grows and make more profit, you earn portion of profit which is paid to the shareholder. At the same time, for you to make money from your shares, sell your shares when the worth increases.
- How to start:
Register for a brokerage account online, Select a company or a collection of stocks such as (ETFs or Index funds) then begin to buy the shares. Make thorough findings about the company, you are buying shares from.
3. Bonds
- How it works
This is where government or organization receives loan from individuals or group of individual. An interest is paid to you over some fixed period of time. At the end of the period you receive your principal back. Bonds are of a very low risk compared to stocks.
- How to start:
Buy Bonds from government securities market place, Bank, or a brokerage. Ensure you make enquiry on bond’s credit rating and interest before purchasing.
4. Mutual Funds
- How it works
These works by gathering money from various investors to invest in different types of stocks, asset or bonds. An expert manager manages the funds and investments.
- How to start
Research for a good organization that does mutual funds with very high rating and reviews. You can invest through investment platform, banks, financial institutions or brokerage accounts. Make enquiry about their fees and funds aim. Search for organizations that do mutual funds
5. Commodities
- How it works:
This involves purchasing assets that are physical such as gold, silver, oil, agricultural produce or natural resources. You buy them, keep them in stock and sell when the prices are high to make profit over time.
- How to start
Commodities can be bought and stored directly by you and sell later or own a commodity for future contract ( is a legal contract to purchase or sell a commodity at a predetermined price for a specific date in the future). Website like “Chicago Mercantile Exchange (CME) are used to trade commodities or contract for future Exchange. Ensure you critically make enquiry about research market trends before you invest.
6. Savings Accounts and Certificates of Deposit (CDs)
- How it works
Savings account and CDs has a low level of risk. To receive a small interest, you have to deposit a specific amount of money in the bank according to the requirement. CDs are the process of fixing your money In the bank without withdrawing for a specific period of time, but it comes at an increased interest rate compared to savings account.
- How to start
Register for a savings account or a CD in the bank. Make research to see other rates to compare the best offers
7. Forex Trading (Foreign Exchange)
- How it works:
A forex trader makes profit from an Increase change in the exchange rate. It is a market that fluctuates in price. Investors take advantage of the increased price in currency and make profit in selling the currencies for an exchange of another currency.
- How to start:
Register for a foreign trading account using a broker online, ensure there is money in the account and start to trade the currencies. Before you begin trading, learn more on currency pair and market worth. Research for forex brokers with high rating or good review to trade with.
8. Cryptocurrency
- How it works:
Bitcoin, Ethereum are examples of digital currencies, in which they make use of blockchain technology. Investors buy a particular currency such as bitcoin when it is low and sells it when the value of Bitcoin currency has increased. Always check out for market trends and demand before purchasing any cryptocurrency. For example: if Bitcoin is $10,000, you can sell it when the price goes high at $20,000
- How to start
Register a cryptocurrency exchange account like Binance. Purchase any of the cryptocurrency you chose and store it in your digital wallet safely. Before you purchase any digital currency, look out for market trends and demand.
9. Retirement Accounts (401(k), IRAs)
- How it works:
This kind of investment comes with a contribution of part of paycheck into an individual savings account for a long term after tax has been deducted. The money being deducted is invested for a combination of stocks, bonds and various securities. Is either done by your employer or you as an individual.
- How to start:
As an employee, your employer renders a 401(k) plan on your behalf or if you are not employed, as a self-employed individual you can register for individual retirement account called (IRA) with a Brokerage.
10. Annuities
- How it works:
Annuity is an agreement with insurance company where you invest large sum of money in exchange for a future payment periodically. This kind of investment is mostly used for retirement purpose. It renders payment with a fixed interest rate. It is very safe.
- How to start:
Buy annuity from an insurance company. Have a critical understanding of their fees, payout structure, interest and tax disadvantages before you invest. You can select immediate pay (being payed right away within a year of buying the annuity) or deferred annuity (to be paid in a later date for example several years after you have invested in purchasing the annuity.)