Money earned can either be consumed or saved. When money is
saved it can either be hoarded or be invested to enhance its
value. An investment project requires information about the
various avenues available.
The general term used to refer to the investments made is
'assets'. Assets reflect one's investment in cash, bonds, stocks
or other sources that generate income. Out of the various assets
available for investment, the most common one is Stock. Stock
refers to the shares of the companies. It can be of various
types - capitalization stocks, mid capitalization stocks, and
small capitalization stocks - to name a few. Trading in stocks
can be very profitable; however, the risk involved in the stock
is equally high. Playing the odds in the stock market is one of
the riskiest ways of earning money. Small factors can have
adverse effect on the market, thereby leading to huge losses.
Another trading instrument that one can invest in, is bonds.
Bonds are similar to debentures i.e. they represent the loan
given to an entity. Bonds are usually issued by public bodies
like the Municipality, though corporate bodies can also issue
bonds. They come in varieties and the investor can choose
depending on his preference. Bonds are comparatively less risky
than the stock and offer a steady source of income. One can also
go for bond funds to further minimize the risk.
A mutual fund is a group of investors that pool in money for
investment and then share the income. When an investor buys the
shares of a mutual fund, he becomes the shareholder of that
fund. According to their investment objectives mutual funds can
be divided in to various categories. They are considered to be a
safe investing option as they are cost efficient and easy to
invest in. The investor usually does not have to decide between
various scripts to invest in.
Cash equivalents are safe option to invest in for the risk
averse. These assets are characterized by liquidity, price
stability and a regular income. The only drawback is that the
return in case of cash equivalents may be low as compared to
that earned through the stock market. Cash equivalent include
treasury bills, banker's acceptances and money markets.
IRAs are beneficial especially to families having a single bread
earner. Its is a kind of saving plan in which money is deposited
at regular intervals. An added attraction is that the money
contributed is normally exempted from tax.
Many people invest in real estate to earn a regular income.
Their strategy is to invest in the properties and rent them.
These properties then provide a steady stream of income.
However, before investing in land the investor should study the
tax laws, depreciation and accounting implications, and the
tenancy laws.
An investor should select the most appropriate asset to invest
in, depending on his financial capacity and the returns he
expects. Professional aid generally helps in deciding the right
asset. An investment in the future helps one to prepare for the
unforeseen and secure one's financial freedom.
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