Investing is a process that requires time. Very present in nowadays communication, this process refers to renunciation so people could benefit from their business. There are many types of investments and here, we will go through them individually, as well as explain them to their details and make them more understandable considering the fact that business in the present age is very complex and voluminous.
Here is the most recognized and the most known type of investments.
Investing in Stocks
A commonly used term in business is a stock and many of you have probably heard it already! If not, here’s an explanation.
A stock is a warranty that shows the ownership of the part of a corporation. As we know, one person can own an entire company, but more common practice is that multiple people have a certain number of stocks. Having a few individuals owning stocks in your corporation or company means your equity divided into several parts. Back in the time, people used to print stocks, but now, in the digital age, people have them in electronic form.
An individual owning stocks in a company means that he has the ownership of the particular fraction in that company.
The stock trade has become demystified through various films such as The Wolf of the Wall Street and several others. Did you catch any of them? After watching some films many people started searching and exploring investments and the money you can make with them! Not to blame though.
Probably, the main reason for the most recognized type of investment in the modern age – stock, is the possibility to trade stocks. However, there are closed stock companies, where this right to free-sale stocks is probably more complex because, for transferring stocks, you need permission directly from the top, which means the manager should permit you or, in some cases, the owner of that company.
As well as with stocks, many of you have probably heard of bonds. Bonds are financial tools, better known as debt security. With debt security in your possession, you also have a tool for collecting your payment.
Bonds are of great importance when it comes to raising free funds in modern economic relations.
The difference between bonds and stocks
As we mentioned above, business nowadays can be very complex and hard to understand if you are not an economics student. So, we can explain what the difference is between the investment types mentioned above.
Said stocks are representing another stockholder of that company, in a word. But, if you take into consideration the other one – bond, then you will get a contrast.
In order to understand it even easier, let’s imagine the scenario where we have two companies facing bankruptcy. On the one side of the field, you have stockholders and on the other one, you have bondholders. Rewinding the time, you can say that bondholders actually GAVE you the money and stockholders TOOK the money from you, literally explained. So let’s think about it. A logical flow of things gives you the thought of bondholders having priority over stockholders in case of bankruptcy.
Why buying stocks?
People are pretty scared of investing in stocks and even bothering about stocks. Well, this is not the case for you if you understand how it really works.
While people are giving scary looks to the investments, more precisely stocks, investors are earning money. The only thing we should be scared of while investing in the research. What does it mean? Many investors research the company they want to invest and yes, they get the right to have information about their business and the success they’ve made so far. In that case, the investors have full insight into the business plan for a given company. And once they’ve done that, they would probably invest money in their stocks.
Stocks are on the rise (soaring, jumping, going up) if the company is making a profit.
With a good choice and a good company that is improving their business, the investor could just trade his stocks for money once he decides to do so.
If you want to know more about stocks and maybe buying one, check this.
Benefits and Pros of Long-term investments
Long-term investments are investments with a length of ten years or even more. It’s considered to be at least ten years when we talk about long-term investments. The thing with long-term investments is, an investor can take more risk than he could with short-term. It’d be a good example of you understanding the difference between long-term and short-term investments.
To be noted, no investment can be one hundred percent safe, all investors take risk while investing, but on long-term period values can change drastically referring to the starting period.
Benefits and Pros of Short-term investments
While talking of short-term investments, we look at investments holding a period of three years or even less, maybe months. A good tip for investors – look at investments with low risk once deciding it’s going to be a short-term investment! Values can change drastically when on short-term investments.
Commonly, investors choose short-term investments when they’re in need of an immediate return of money, it could be for vacations, holidays, or something else that needs to be done in near future. Although there’s a risk present in both types of investments, there’s no investment without risk.
Short-term investments offer the opportunity to the investor not to wait a certain amount of time to get the money.
As its name says, short-term investments offer a short period to make a profit. It offers less risk than long-term investments.
We advise you to make a good strategy as most investors do and don’t take unnecessary risks if you don’t have to. Well, don’t forget that the risk is a MUST in investments so if you want to invest, be ready to take a risk, but don’t be too quick on deciding. You should probably meet professionals and consult with them so you can together make a better choice.