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What is an investment?
When you invest, you trade current resources (such as time or money) to acquire an asset that will hopefully generate future benefits. Ideally, if you invest an asset at the right time and place, your investment may potentially gain value. For example, when you invest in the stock market, you typically trade money (an asset) for stocks. Robinhood Login There are many different types of assets a person might invest in — Stocks, bonds, commodities, mutual funds, and real estate are just a few common examples. Generally speaking, the idea of an investment is that it can benefit the investor over time.
Think of someone buying a house with the hope that it will appreciate and later sell at a higher price. For many people, an investment offers an opportunity to grow their overall wealth or provide a source of income. It’s also important to keep in mind that all investments come with some level of risk. For example, a stock or property’s value can decline after you buy it.
The meaning of an investment can vary depending on the context. In macroeconomics, an investment refers to goods that are acquired and used in the future to create wealth.Robinhood Login A company or individual in one country might invest in business interests in another country, such as setting up a factory (aka foreign direct investments).
What are the types of investments?
Just as you can grow many different types of plants in a garden, you can put your money and other assets into a variety of securities. Depending on the investment, there may be different potential for returns, risks, and other characteristics, such as management fees and tax ramifications. Here’s a look at some examples of investments in the financial world:
Stocks
When you invest in a stock, you’re essentially buying a small piece of ownership in a company.Robinhood Login Stocks are kind of like the movie stars of investment instruments — They’re always in the news, and everyone’s talking about them. When people invest in stocks, they tend to do so with the hope that the stock’s price will have increased by the time they decide to sell. Selling a stock at a higher price often means that you’ll profit from the sale (assuming the increase in price was more than enough to cover any trading fees and transaction costs). Some companies distribute profits to shareholders through quarterly dividend payments to owners of common stock.
Bonds
When you buy a bond, you’re lending your money to a government, company, or other borrowing entity. In exchange, your debtor (aka the bond issuer) is generally obligated to repay the debt, plus interest. Companies and occasionally countries are sometimes unable to make their bond payments, however, and default — They don’t make payments to the bond holders. Organizations usually default as a last resort because doing so can scare away investors, making it hard to raise funds. Traditionally, a bond is a fixed-income instrument, meaning it provides payments on a fixed schedule. Bonds typically have an end date (aka maturity date), on which the final interest payment is made and the original amount loaned is paid back.
Other investment categories
There are many other financial investment classes, such as real estate, futures, Certificates of Deposit, cryptocurrency, options, commodities, and more. Before investing in any asset, it’s important to understand the terms, fees, and risks involved.
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