What is an investment?
No person can claim financial development if he does not make an effort. Investments represent a promoter of financial development, given by the efforts made to obtain further benefits.
The term investment has become a common one, by which we understand spending an amount of money to create a new project or to develop existing projects, the value of which is quite high, for long-term use. The French economist Florin Aftalion believes that“investing means giving up liquid sums of money in favor of the hope of achieving future income, distributed over time.” The legendary investor, Warren Buffett, defines investing as“the process of diversifying the distribution of money in the present to obtain profit in the future.” We join the treatments of this financial concept by different writers, experts, and investors, and say thatinvesting is your financial effort for a better future, created through personal development and financial education.
In this guide, we will help you better understand what an investment is, what are the best investment tools, and how you can increase your profit and minimize your losses.
SUMMARY:
- Investment is the process of placing a sum of money or capital in goods, financial instruments, or businesses with the aim of obtaining additional income or profit.
- Any investment comes with risks of loss.
- Investing in the forex market is the most common way that novice investors can gain excellent experience in this field.
What type of investor are you?
Before making an investment, you must first determine what type of investor you are. Are you conservative, moderate, or aggressive? All your decisions on the capital market, your financial goals, and the level of risk you are willing to take accumulate, forming a certain trading style. Maybe you are mainly looking for the safety of the invested capital or you are willing to lose a large part of it – only an honest self-analysis can tell you what kind of investor you are.
Choosing the broker
Just as the bank is an intermediary between you and your money, the broker is an intermediary between the financial market and the investor or trader. If you want to invest in the stock market, it is important to choose the right broker from the start. Choose it according to its reputation in the market, the size of the commissions, the quality of the services provided, the amount you want to invest, and, last but not least, your potential as an investor. Because a very good driver also deserves a car to match. Isn’t that so?
A good choice is to work with an online broker . He can support you in everything you set out to achieve as an investor. It can offer you quality services, innovative financial instruments, and modern and reliable trading platforms that you can use simply and comfortably from your phone or computer screen. There you also get information, push notifications, analysis, breaking news, educational materials, and spots that can help you make the right investment decisions.
Which instruments to invest in?
” What is the most suitable investment tool for me? “ It is a question that every potential investor will ask himself at least once in his life. Asking big investors what the best investment tools are, you’ll get different answers. And it is natural since every investor has his own vision, his own preferences, his own goals, and his own risk appetite. You may choose to invest in the stock market in stocks, Forex, ETFs, indices, oil, mutual funds, and other commodities, or you may want to invest in real estate, art, or antiques. So it would be pertinent to first answer the questions: “What are the most suitable investment instruments for me?”, ” Am I ready to invest in these instruments? Do I have the necessary education? ”
What amount to start with?
First of all, you should set your investment goals, including the time frame for which you want to invest so that you can create a diversified portfolio that meets your needs. To begin with, it is recommended to invest virtual amounts on a demo trading account to test your skills and understand if this is really the right investment field for you.
First steps on the Stock Market
You have no way to invest in Berkshire Hathaway class A shares, if you have, for example, an amount of 100 thousand dollars, because the shares of this company are traded at the highest prices on the stock exchange (300 thousand USD per share in 2019), especially after Berkshire Hathaway invested in cloud company Snowflake. Likewise, if you want to become a large-scale real estate investor, to build building complexes, but you don’t have a few million euros in your account, that means that investment is not right for you.
Trading robots
Have you made your first investment in the stock market, but you don’t have time to stay glued to the computer to monitor the progress of transactions? In 2009, a new era in Forex trading began: the first Expert Advisor was launched – the FAP Turbo trading robot that practically broke the mold among investment and trading tools. Now the market of trading robots consists of thousands of robots – lines of code written in the MQL4 programming language that follow the execution of operations dictated by the trader, without his intervention. The trading robot is an algorithm intended for the MT4 platform that can partially or fully take over the trader’s activity in trading various financial instruments. It is very useful when you don’t have time to sit in front of the computer or you want to make money while you sleep (!). Another advantage – you get rid of the worry of errors or emotions. You only have to “order” them according to some programming parameters, and the robot will trade for you without emotions or over-trading.
Investment diversification and risk reduction
Diversification is considered to be the only freelunchfor the investor. In other words, by investing in a variety of assets, you reduce the risk that an investment’s performance will seriously affect its return. Also remember Warren Buffett’s advice:“Don’t put all your eggs in one basket. ” Indeed, you can reduce investment risk by creating a portfolio or basket of financial instruments that includes a variety of assets. The basic idea is to spread the risk so that the unfavorable performance of one investment is compensated by the gains from other investments. Consider that if you invest in the stock of a single company, your investment would depend solely on what happens to that issuer. If his shares start to fall in value, you have nothing to cover your losses.
SUMMARY:
- Diversification is a strategy that balances risk in investments.
- For effective diversification, you must invest in a variety of assets, so you will be sure that you will not be vulnerable in one direction or another, using a combination of them.
- Over-diversification does not necessarily mean greater risk reduction and can negatively affect your investments.
And because we live in uncertain economic times, the economy is affected by the pandemic caused by the COVID-19 virus globally, you will wonder what is better to invest in when you anticipate a financial crisis and how you can avoid major losses. Well, in the situation where you have more time to stay at home and the market is volatile and offers you opportunities to invest in profitable instruments such as gold, currencies, or ETFs, you have time to take online courses about investing and understand which are the assets less likely to experience losses during the crisis.
