What is the best definition of investment?

Investing stands as one of the most potent routes to wealth accumulation and hitting your financial targets.

But what does investing mean? 

How does it work? 

What are the types and benefits of investing? 

In this article, we will answer these questions and explain the concept of investment in a simple and practical way. 

Read on!

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What is investment?



Investment is the act of applying resources, such as money, time, effort, etc., to something with the aim of getting income or appreciation in the future. In other words, investing is using what you have today to generate more tomorrow. 

An investment can be an asset or an item that you acquire or a project that you carry out.

For example, when you buy a share of a company, you are investing in a part of it, hoping that it will increase in value and pay dividends. 

When you start your own business, you are investing in your entrepreneurial potential, hoping that it will generate profits. 

When you take a course, you are investing in your knowledge and skills, hoping that they will increase your chances of getting a good job or a promotion.

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How does investment work?

Investment works based on two basic principles: the return and the risk. 

The return is the outcome of the investment, which can be positive or negative. 

The risk is the possibility of the investment not generating the expected return or even causing loss. 

Generally, the higher the potential return of an investment, the higher is the risk associated with it, and vice versa.

For example, investing in a savings account has a low return, but also a low risk, as it is guaranteed by the government. 

On the other hand, investing in a startup has a high return, but also a high risk, as it depends on the success of the business. 

Therefore, it is important to evaluate your investor profile, that is, your degree of tolerance to risk, before choosing an investment.

What are the types of investment?

There are several types of investment, which can be classified according to different criteria, such as the nature, the profitability, the liquidity, the term, etc. 

Below, we will present some of the main types of investment, according to the nature.

Financial investments

These are those that involve the application of money in securities, securities or financial instruments, such as stocks, funds, fixed income, currency, etc. 

These investments are regulated by the financial market and can be made through financial institutions, such as banks, brokers, etc.

Real investments

These are those that involve the acquisition of tangible or intangible assets, such as real estate, machines, patents, brands, etc. 

These investments are regulated by the market of goods and services and can be made through companies, organizations, individuals, etc.

Human investments

These are those that involve the application of resources in activities that aim at personal or professional development, such as education, health, leisure, etc. 

These investments are regulated by the labor market and can be made through educational, health, cultural institutions, etc.

What are the benefits of investing?

Investing brings a number of benefits, both financial and non-financial. 

Some of the main benefits of investing are.

Increasing your wealth

Investing allows you to multiply your money over time, creating a wealth that can be used to achieve your dreams, such as buying a house, traveling, retiring, etc.

Protecting your money

Investing allows you to preserve your money against inflation, which is the loss of purchasing power over time. 

By investing, you seek a profitability that is higher than inflation, maintaining or increasing your purchasing power.

Generating passive income

Investing allows you to receive periodic income without having to work actively for them, such as interest, dividends, rents, etc. 

This passive income can complement your active income, coming from your work, or even replace it, if you want to live on income.

Learning new skills

Investing allows you to develop new skills, such as planning, organization, discipline, analysis, decision making, etc. 

These skills can be useful not only for your investments, but also for your personal and professional life.

Achieving your goals

Investing allows you to reach your short, medium and long term goals, whether they are financial or not. 

By investing, you create an action plan, set goals, track results, make adjustments, etc. 

This helps you to keep your focus and motivation to achieve your goals.

Conclusion

Investing is one of the best ways to make your money work for you and to achieve your financial independence. 

But to invest successfully, you need to understand what investment is, how it works, what are the types and benefits of investing. 

In this article, we explained these concepts in a simple and practical way, so that you can start investing with more confidence and security.

We hope you enjoyed our article and that it was useful for you. 

If you want to know more about investments, keep following our blog. 

And if you have any questions, suggestions or comments, leave your message below. 

We will be happy to answer. 

See you soon! 

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