Knowledge Of Investment

Posted on December 20, 2008
Filed Under Finance |

Investment is a word which many people are familiarize with. However the in dept knowledge of investment is so deep and broad which after you bought an investment book and read it, you will come to think that ‘ why I didn’t thought of that?’ It’s so simple and logical when you understand it yet it’s difficult to comprehend in certain sense.

What exactly is difficult to understand in ‘investment’ is that it is extremely versatile. The whole world is running with the word ‘investment.’ Investments are our life from the moment we are born till the day you pass away.

Take for example when you were young, you take piano lessons. Your parent ‘invested’ some money into your piano lesson, education fees and when we grew up we will invest our efforts and time in our job.

In each of these activities there is usually some sort of pay-off further down the track. For instance, if you study hard you should get good grades and if you practice your soccer skills regularly, you will stand a good chance of making the top teams at school.

What I’m trying to explain is that these are no different in investing money. Investor’s main objective is to earn more money in the future than what they initially started. Basically, they want to have more money than what they started with – in other words “chase bigger returns” for their investment dollars.
In the financial world there are a wide range of options for investors to seek a monetary return greater than their starting investment amount. If you have 2000 bucks to invest, you are seeking a larger amount in returned the end of your investment period. The higher the risk, the higher the return.
The knowledge is so broad that I feel typical people like me or you should know and I would like to point it out here.

There are two types of Debt. Good Debt is where you borrow funds to secure a capitally appreciating, income-producing asset. Bad Debt is where you borrow to buy a capitally depreciating, non-income producing item such as a car, boat or holiday.

There are many different strategies for property investing, which suit different people depending on their current income or financial position.

What are some of the common ways to invest?

Buying stocks:

The most popular and straightforward method to invest in stocks is to just buy them! All you have to do is sign up with a broker and buy particular companies you decide are the best investments. The benefits of this method are you choose which companies you believe will perform best, thus you have a choice in it. The drawbacks here are that you may not have enough time to spot which stocks make the best investments. It is also sometimes hard to diversify your portfolio, since you likely will not have substantial knowledge on a variety of stocks from various sectors.

Exchange Trade Funds:

An ETF is like a mutual fund, except it passively tracks an index like the S&P 500. The advantages of the ETF are the same as the advantages of the S&P 500. Also, since ETFs just buy whatever stocks make up an index, they have lower fees than mutual funds. However, by its nature, an ETF will never beat the market since it just attempts to mirror the market. ETFs have become increasingly popular though since many investors have become disillusioned with mutual funds.

Mutual funds:

If you decide you want someone to do the investing for you, then invest in mutual funds. When you put money into a mutual fund, you are pooling your money with other investors and allowing professionals to invest it for you. The advantage here is that you do not have to follow your investments yourself, since someone else is doing the work for you. Also, mutual funds tend to buy hundreds or even thousands of stocks, so even just buying one mutual fund can give you diversification. The drawback is that most mutual funds under perform the market (due to fees and asset bloats), so most of the time you are actually better off just randomly picking stocks yourself!

Christopher writes on business and investment related issues. You can learn more by visiting my blog. http://yeoworld.blogspot.com/

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