Understand the Basics of Investing - Kakiforex.com - Financial Market Media No. 1 in the World Understand the Basics of Investing Understand the Basics of Investing
InstaForex

June 16, 2021

Understand the Basics of Investing

 Where can I put my money?


 For starters, we’ll learn some basic types of investing - knowing the right place option for you to put your money.



What is an investment?

In everyday life, we always think of investing as using time or effort for something that will provide benefits in the long run, such as education. From a financial perspective, we are more focused on investing money, with the expectation of generating long-term profits from that investment.


The profit generated from an investment is known as the return on investment.


Return on Investment = (Net Profit / Investment Cost) x 100


 


Investment for empowerment


The long-term benefit of investing is that it allows you to achieve the lifestyle you desire. For most investors, increasing savings and investments is not to get rich quick or have a private jet, but is to strengthen their finances and the freedom to choose the lifestyle they want.


 


Today's Word: "Compounding Return" or Double Interest


The process that occurs when you let the profits from your original investment be reinvested until you reap the benefits of your profits. This causes the investment to rise higher, generated from the profit earned from the original investment and its accumulated return.


 


Types of investments:


Stocks


One well-known type of investment is stocks. Simply put, when you buy a stock, you have a small ownership stake in a company.


You may also have heard of stocks called equities.


Since you own part of the company, you are also entitled to a portion of the company’s income. A company that makes a profit, allows it to pay dividends. This is a way to distribute the company’s income to its shareholders. Usually, companies give most of their income in the form of dividends.


You can buy shares through a stock exchange, which is basically a large auction house, where buyers and sellers list the requested sale price, and when agreed, they transfer ownership of the shares. In Malaysia, this is Bursa Malaysia.


 


Unit Trusts


Unit Trusts are a form of cumulative investment scheme that allows investors with similar investment objectives, to pool their money together to invest.


The fund manager then invests the accumulated money in a portfolio that includes various asset classes such as cash, bonds, stocks, real estate, and commodities.


Fund ownership is divided into units. When the value of a fund increases or decreases, the value of each unit also increases or decreases. The number of units held depends on the amount of money invested and the purchase price per unit at the time of investment.


One of the advantages of investing in unit trust funds is that at low cost, they give you exposure to many different companies, diversify your investments, and are managed by certified fund managers. We will discuss more the importance of diversity in this series later.


 


Cash


Cash is what you keep in your bank account. It is a very low risk but the return is also very low in terms of investment.


When we talk about cash as an investment, we are familiar with Fixed Deposit accounts. It is a bank account where you cannot touch your cash for some time and you will receive a set profit rate.


The advantage of saving money in cash is that you will definitely get your money back when you need it. Still, it comes with a very low cost of return on investment - probably lower than today’s challenging cost of living increases.


 


Real estate


Unlike other investments before, a real estate is a physical object that you can see and touch. Demand for selling and buying real estate is the main cause of price fluctuations. There are many factors that influence real estate demand, but the location is among the main factors.


Real estate investing is well understood by many. In Malaysia and most parts of the world, there is a belief that property prices are forever rising. However, this may not be 100% true as no properties are traded every day and the price estimates are also less clear.


The disadvantage of real estate investing is the high cost of entry and exit, and chances are you will lose out in the short and medium-term if your interest payments are more than the income you earn from renting. Real estate is also difficult to liquidate the asset, meaning that selling a property takes a long time.