Investments

An investment is the choice by the individual, after thorough analysis, to place or lend money in a vehicle (e.g. property, stock securities, bonds) that has sufficiently low risk and provides the possibility of generating returns over a period of time.

Forms of Investments

Bonds

Institutions derive funding from loans from other companies, or individuals. In return, bond holders get back the loan amount plus the interest payments. When interest rates fall, bond prices rise, and vice versa, However, if one holds onto maturity, price fluctuations will not matter. One still is able to claim back the original face value of the bond and the agreed interest.

Stocks

These  aren’t just pieces of paper. When you buy a share of stock, you are taking a share of ownership in a company. Collectively, the company is owned by all the shareholders, and each share represents a claim on assets and earnings. Investors may talk about large cap vs. small cap stocks , energy vs. technology stocks or growth vs. value stocks.

In the short run, the behavior of the market is based on fear, greed ,and rumors. Over the long term, the driving force of the market prices will be the company’s earnings.

Mutual Funds

These are funds which serve as  vehicles for investing in stocks and bonds. It is not an alternative investment option to stocks and bonds, rather it pools the money of several investors and invests this in stocks, bonds, money market instruments and other types of securities. The owner of a mutual fund unit gets a proportional share of the fund’s gains, losses, income and expenses.