What is the main investment meaning?

Do you know what investment is and why it is important for your financial life?

Investment is the act of applying resources, usually money, in some project or asset with the goal of generating income or appreciation in the future. 

Investing is a way of making your money work for you, multiplying your wealth and ensuring your security and financial independence. 

In this article, you will learn the concept, the types and the importance of investment. 

Let's go?

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Concept of investment



Investment is a word that can have different meanings, depending on the context in which it is used. 

However, in the financial context, investment is defined as the application of resources in some project or asset with the expectation of obtaining a positive return in the future, either in the form of income or appreciation. 

For example, when you buy a share of a company, you are investing in its business, hoping that it will generate profits and dividends, or that its quotation will increase in the market. 

When you buy a property, you are investing in an asset, hoping that it will generate rent or that its price will rise over time.

Investing is different from saving or speculating. 

Saving is keeping money for future use, without putting it at risk or in search of profitability. 

Speculating is betting on price variations in the short term, without caring about the intrinsic value or the quality of the asset. 

Investing is putting money at calculated risk, seeking profitability in the long term, based on analysis and rational criteria.

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Types of investment

There are several types of investment, which can be classified according to various criteria, such as the degree of risk, the term, the liquidity, the profitability, the origin, the nature, among others. 

Some of the main types of investment are:

  • Fixed income: these are investments that pay a fixed or predefined remuneration, such as interest, coupons or monetary correction. Examples of fixed income are government bonds, bank deposit certificates (CDs), real estate credit letters (LCRs) and debentures.
  • Variable income: these are investments that do not have a fixed or predefined remuneration, but that depend on the market price variations. Examples of variable income are stocks, investment funds in stocks (FISs), real estate funds (REFs) and options.
  • Investment funds: these are investments that gather resources from several investors and are managed by a professional manager, who applies the money in a diversified portfolio of assets, according to a strategy and a regulation. Examples of investment funds are fixed income funds, variable income funds, multimarket funds and investment funds in credit rights (FIDCs).
  • Private pension: these are investments that aim to guarantee a complementary income in retirement, through periodic contributions and a benefit plan. 
  • Other investments: these are investments that do not fit into the previous categories, but that can also generate income or appreciation in the future. Examples of other investments are gold, foreign currencies, cryptocurrencies, art objects and antiques.

Importance of investment

Investing is important for several reasons, among them:

  • Preserve the purchasing power: investing is a way of protecting your money from 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 real wealth.
  • Increase wealth: investing is a way of multiplying your money, taking advantage of the effect of compound interest, which is the interest on interest. By investing, you seek a profitability that is higher than the basic interest rate, which is the cost of money in the market.
  • Achieve goals: investing is a way of planning and achieving your financial goals, such as buying a car, a house, taking a trip, paying for college, retiring, among others. By investing, you seek a profitability that is compatible with your risk profile, your term and your liquidity need.
  • Ensure security and financial independence: investing is a way of preparing for unforeseen events and emergencies, such as illnesses, accidents, unemployment, among others. By investing, you seek to form an emergency reserve, which is an amount of money that should be enough to cover your expenses for a period of time. In addition, investing is a way of freeing yourself from the dependence of a fixed source of income, such as a salary, a pension or a retirement. By investing, you seek to generate passive income, which is an income that does not depend on your work or effort.

Conclusion

Investing is one of the best decisions you can make for your financial life. 

Investing is putting your money to work for you, seeking income or appreciation in the future. 

Investing is a way of preserving your purchasing power, increasing your wealth, achieving your goals and ensuring your security and financial independence. 

To invest, you need to know the concepts, the types and the importance of investment, as well as define your risk profile, your term and your liquidity need. 

You also need to choose the investments that suit your characteristics and your goals, diversifying your portfolio and monitoring your performance. 

I hope you enjoyed my article and that it was useful for you. 

See you next time!

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