Attracting investment is important both for business and for the economy of cities and even entire states. Additional finances allow you to develop more actively without postponing growth for the future. For example, modernize production, create new jobs, build roads and housing, develop transport, improve city parks and streets. All this gives more opportunities and ultimately improves the quality of life. We continue the series of publications "Moscow economy in simple terms". This time we tell you what investment is and how the capital attracts capital.
What is investment?
The financial illiteracy of the majority of ordinary people and the prevalence of American films about tough Wall Street businessmen have formed in the minds of most people the idea that investing is a path for very rich people or a business dealt with by large investment companies. In fact, this is not so, and you can become an investor with very small amounts of money that are sufficient for investing on the Internet. To understand who is available for investment activities, you should first understand what it is.
Investment is the investment of funds in tangible and intangible assets for a certain period of time with the aim of making a profit.
The word “investment” denotes both the commercial process of investing funds and directly those material goods that are invested and bring profit. It is worth noting that investing is not only a way to earn money, but also a way to store funds, because if you just put money under the mattress, not only will it not be able to multiply, but it will also depreciate over a period of time due to inflation and devaluation.
Thus, we figured out that investment is a rather broad concept, which implies not only a form of income for banks, large businessmen and businessmen who already have a lot of money. Each of us can also become an investor - you just need to find investment options that are suitable for you.
Types of investments - classification
If you think that investments for ordinary citizens begin and end with deposits in banks, then you are deeply mistaken. There are a huge number of organizations, objects, subjects and schemes that allow you to make money with your own money. Moreover, there is a whole classification of investments according to different criteria, which we will consider below.
By investment objects
The object of investment can be anything that can generate income in the future. Depending on the category of this very object, there are types of investments, which you will read below.
Real investment
Purchase of tangible and intangible objects that represent capital in various forms: acquisition of an already operating business (investment in business), land, funds, patents, rights to own something. Such acquisitions, unlike ordinary purchases, can generate income in the future. Investing in real objects has minimal risks that the invested funds will not come back.
Financial investments
They represent an investment of money in various investment instruments that will bring profit. This category includes PAMM accounts, HYIPs, purchase of securities, mutual funds. The risk of losing your money is very high; such investment instruments cannot guarantee 100% that you will be able to make a profit.
Speculative Investments
This type of investment works on the principle of “find cheaper and sell more expensive,” that is, it is pure speculation. The most popular type of investment in speculative instruments is to buy a currency when the exchange rate falls and sell when it rises. In addition to foreign exchange transactions, this type of investment includes the acquisition of precious metals, shares for resale and bonds.
Venture investments
Investment in new enterprises and startups that have just launched and have the prospect of future earnings. This is an extremely risky type of earning money from investments, since it is an investment in an innovative business, projects that have no analogues. At the same time, the investor cannot know for sure whether the investment platform will work or not. At the same time, venture investments can bring very large income if the idea on which the business is based is fully implemented and is of interest to the consumer.
Special purpose
You can invest in anything – both in material objects and in your own education or health. Depending on the purpose of investment, there are three types of investments, which are described below.
Direct investments
If an investor invests directly in material objects or production, then such an investment is called direct investment. Moreover, if there is any company receiving an investment, then the investor receives a share in its authorized capital.
Non-financial investments
You can invest not only in a direct object that has a material embodiment, but also in a document that has legal force, which a priori will bring benefits. Non-financial investments include investments in projects of licenses, rights, equipment, etc.
Portfolio investment
The last type of investment for the intended purpose involves investing in securities. They are an investment portfolio of shares or bonds of a company and do not require active management from the investor - he simply receives the profit stipulated by the terms of the investment. Investments in shares can be either very profitable or not bring any profit - it is important to determine the prospects for such an investment at the initial stage of investment.
Type of ownership
Depending on who is the investor and contributes funds to the investment object, types of investments are distinguished according to the form of ownership. Separately, there are investments made by the state, a company, an individual, a representative of another country, as well as a mixed type, when several different investors are present at the same time.
State uniform
In the state form, a government body or official acts as an investor using funds from the state treasury. This form includes both national persons and structures and local investors. Where can the government invest? There are a lot of examples: from investing in improving the environmental situation of a certain region and repairing roads to patronage of culture and the development of the spiritual level of the population.
Private form
Everything is simple here, if an individual investor invests funds somewhere for personal purposes, then we have a private form of investment. Most often, private investors invest funds with the aim of increasing them and pursue only material gain. Investments and finances in this case are used only for personal ones.
Foreign / Foreign
Often, investors are citizens, companies and government agencies of another country - this practice is quite common due to the fact that different regions of the world have different conditions for doing business. If an investor sees greater prospects than in his own country, then nothing prevents him from making foreign investments.
Investment term
When investing funds, as a rule, the period during which the deposit will work is agreed upon in advance. The only exceptions are such types of investment as speculative, for example, the purchase of currency and its further resale, which will be carried out under favorable conditions - it is unknown whether a year, a month, or 24 hours will pass.
Long-term
Pursuing maximum profit, an investor can say goodbye to his funds for a long period of time, more than 5 years. This type of investment is called long-term and it is, as a rule, the most profitable investment. Most often, long-term investments are large capital investments in construction, development of something, development of a new business area, which a priori should be very profitable and worth the wait.
Medium term
In the event that the duration of the investment is determined to be shorter than 5 years, then we talk about medium-term investments. As a rule, an investment fund, project or direction with such a duration has an average rate of return.
Short term
To be an investor, it is not necessary to wait until old age for the return of your funds and profits, waiting for their return in 5-10 years. There are a lot of short-term offers that promise earnings over a period of time of no more than a year. Take, for example, even bank deposits - each bank client can invest funds and receive them in six months or a year with a small premium in the form of interest on the deposit. At the same time, if the profit from an investment comes periodically, even though the investment period may be long, then this type of investment is called annuity.
Investment risks
Investing is a risky way to make money. Even if you do not choose HYIP or PAMM as an investment object, which carry a huge risk, but invest money in a completely legal business, then at any moment some unforeseen situation may arise and the funds will be lost. The reasons why an investment doesn’t work out can be as banal as the world, but in life sometimes the most unpredictable turns of events happen and the reliability of seemingly safe transactions turns out to be fragile and temporary. The modern classification of risks in investing includes aggressive, moderate conservative types of investments. As a rule, investors resort to risk diversification by distributing funds across projects with different risk levels.
Aggressive
The investor wants to get maximum profit and at the same time is not averse to taking risks. He chooses an aggressive investment model, in which the shortest, riskiest and most profitable method is chosen.
Moderate
If an investor does not want to lose his money, but also has a desire to earn more, then he will choose the golden mean - an investment object that contains these two indicators in the optimal ratio.
Conservative
The most cautious investors choose conservative types of investments that minimize the risk of losing money. In this case, as a rule, over a long period you can get a small profit, but the capital is completely safe.
In pursuit of an investor
To attract investments on a completely different scale, for example, to launch large-scale production, investment strategies and attractive conditions are created: taxes are reduced, bureaucratic procedures are simplified, infrastructure is developed, and demand for products is stimulated.
We can say that regions and cities compete with each other, creating an attractive investment climate in order to interest more promising investors and attract large capital to their region.
For residents, investment in the economy is very profitable. In cities that attract more investment, the number of jobs increases, the standard of living rises, and the social sphere develops.
Become a resident
For investors who want to develop business in Russia, special economic zones (SEZs) are created - infrastructure sites with their own internal ecosystem. A striking example is the SEZ Technopolis Moscow. Russian and foreign high-tech enterprises operate on its territory, and the city provides residents with tax preferences, trains personnel, and builds engineering and production infrastructure.
The Moscow technopolis has already provided the capital with almost 11 thousand jobs and tax revenues for the budget. Over the nine months of 2021, residents of the special economic zone invested 7.4 billion rubles in the development of the capital’s economy. Now the total volume of all investments by residents over the entire existence of the SEZ has already exceeded 36 billion rubles.
How to become a resident of the special economic zone “Technopolis Moscow” Cheesecakes, sausages and a pool with nuclear fuel. What else do robots from the Moscow technopolis work with?
Where to invest money?
The issue of investing will never lose its relevance as long as money and Bitcoin exist and as long as they can be “transformed” into material objects and services, because investments are, on the one hand, an opportunity to store money and increase it (if we take into account investments with almost zero risk) . The question of where to invest money in order to get the desired profit from it is also relevant - fortunately, there are plenty of ways to make money make money.
Investments in gold and precious metals
Since ancient times, precious metals have had value, which is still the case today. Therefore, it is not surprising that many investors choose gold and other precious metals as an investment object. But such investing has both its pros and cons. Firstly, the price of gold depends on many factors and it is currently difficult to say what can affect its price. Secondly, the cost of gold, if it increases, is insignificant, and most investors consider this type of investment as storing their funds, which can be terminated at any time and the bullion can be exchanged for real money. From the point of view of multiplying funds, it is not possible to call gold a very profitable investment instrument, so if you look at the return on investment, it is better to look for a better option.
Real estate investing
In today's changing world, when it is difficult to find stability, investors are increasingly looking for the most reliable ways to invest funds. Real estate is one such stable investment. In addition, this type of investment is liquid; residential and non-residential premises will always increase in price and be in demand among consumers. At the same time, the investor is faced with the task of being able to navigate the flow of information and have a good understanding of the essence of the area that he has chosen to make money. When choosing to invest in real estate, it is important to take into account not only the geographical location, prospects, and quality of the property in which you plan to invest, but also take into account multiple factors that in the future will affect the pricing of the structure, and indeed its integrity and safety. So, you cannot buy a house in the village and expect that you can make good money on this investment in the future.
Investments on the Internet
The Internet has entered our lives so tightly that absolutely all spheres of human life have migrated to this virtual space. It goes without saying that we have found a place and investment on the Internet. At the same time, this type of investment has a large number of directions, some of them even operate outside the framework of the law. The most common online investment objects are:
- Forex trading, stock market;
- PAMM accounts;
- HYIPs and various trust funds (this also includes MLM investment fund and other quick investments with considerable risk);
- Bitcoin investments and investing in other cryptocurrencies.
In addition to these specific types of investments in the network, more prosaic ones can be distinguished: investing in your own website, social account, investing in an online project on partnership terms, and much more.
Deposit in banks
Making bank deposits are investment deposits that are most common in society. But it is not possible to consider them profitable, since a low annual percentage, taking into account inflation, will not bring the investor practically any profit. On the other hand, such an investment can be considered a good way to store money.
Investing in mutual funds
Mutual funds have some similarities with PAMM investing (read the article “PAMM Strategy” on the blog). The essence of mutual funds is that investors invest funds in a “common fund”, after which shares of various companies are purchased by traders. Next, the profit received is divided among the participants in proportion to the size of the investment. The disadvantage of investing in mutual funds is that no one can say exactly when there will be a profit and whether it is destined to happen at all, nor can anyone guarantee the return of your funds.
Investments in Startups
A profitable type of investment (very similar in essence to a type of investment such as venture capital investment), in which funds are invested in an interesting, unusual project that should bring good money in the future. In this case, after development, the project may not take off and the profit, like your money, will not be returned to you. In the opposite case, when startups show positive dynamics and are well received by the consumer, the sponsor, that is, the investor, has a good opportunity to make money.
Sources of financing for real investments
Let's consider the main sources of financing for real investments that are actively used in a modern market economy.
There are three key sources:
- borrowed;
- involved funds;
- the company's own funds.
Let's look at the sources in more detail.
Own funds
Most often, own investments are formed through depreciation of fixed assets, as well as using own profits. Large companies use any available funds, including funds from social, pension, and insurance funds.
Involved funds
Raised funds are widespread sources of financing real investments. Corporatization plays a big role here. It is in demand when implementing large-scale projects. This is a good alternative to a loan. However, credit is still used more often, although corporatization requires lower costs.
There are various advantages to corporatization:
- you can attract new funds in significant amounts;
- there are no time restrictions on the use of funds;
- it is very important that payments for the use of money will directly depend on the performance of the joint-stock company;
- the price of funds raised will be lower if the issue size is large.
Investors have a negative attitude towards a new issue of shares if the company has been operating for a long time. As a result, the company's stock price may fall.
Budget financing can be provided. This is widely in demand in the social and industrial sectors. This method can also be used during an economic crisis. It is good to use budget financing when a specific region, industry, or promising enterprise is developing. This method is relevant when a company produces strategic, knowledge-intensive, scarce products.
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Investing for Beginners
Not everyone is born a seasoned investor; everyone starts from scratch and makes a lot of headway before achieving any results. If you have no desire to make big bucks and risk money, then we offer you a short course for a young fighter - recommendations on successful investing for beginners.
Investment process assessment
Once you have chosen the environment in which you are going to operate, you need to study it carefully. Analyze trends, find out how you can get the most income, determine the approximate time frame for breaking even. For example, if you are planning to invest in real estate, then be sure to research the market, determine which properties are in greatest demand, and whether an economic crisis is looming.
Investment forecast
Predict what changes in your profitability may occur in the future and whether the investment will be profitable after any period of time. Also evaluate what factors may influence changes in market conditions and how to avoid negative changes. It would be a good idea to consult with specialists: traders, stock analysts, PAMM investment managers. Do not forget to evaluate how risky your chosen investment projects are and whether this risk corresponds to the profitability that can be obtained.
Investment form
Decide what exactly you are willing to bet on and in what form the investment will be made. If you are a beginner, then most likely it will be financial assets; in the future, both tangible and intangible assets can be added.
Investment purpose
Decide in advance on the purpose of the investment and act with an eye on it. If you just need to get a certain amount of money and stop investing, then you should not invest in expanding production or increasing sales. If you see further prospects in investing and there is a positive trend, then there is no point in withdrawing money from the project, because there is an opportunity to earn more.
Activity analysis
After the start of your deposit, it is necessary to evaluate the development of the property and analyze whether there is a prospect - that is, at this stage it is necessary to assess the effectiveness of the investment. Perhaps the situation has not turned in your favor, then certain adjustments should be made.
Monitoring
Even if the project in which you have invested money does not involve your direct participation, this does not mean that you need to wait idly for profit. It is important to constantly monitor the situation and control the dynamics, especially if you have invested in a high-risk investment object.
How to become an investor?
Anyone can try their luck in investing, but not everyone is destined to become successful investors. First of all, an investor is an analyst, strategist, forecaster and financier rolled into one; he must:
- be quite knowledgeable in the area you have chosen to invest in;
- navigate the pricing of this market segment (if we are talking about speculative investment);
- be able to analyze the situation, have the qualities of a forecaster and strategist;
- have specific goals, clearly understand why he is doing this business and what is expected from him.
In addition to the above, it is simply necessary to have funds for investment, and this should not be your monthly salary, on which you are going to live as a family of five. You must create your individual investment account from available funds that you can afford to lose. And, of course, don’t put all your eggs in one basket - remember to diversify your funds, that is, distribute capital across several projects, or better yet, across different types of investment. Investing is an excellent opportunity for almost passive income, in which money makes money itself. Visit any investor blog, and you will understand that it is not enough to find the answer to the question “how to become an investor”; it is important to understand that before rushing into battle, you need to be sufficiently savvy and aware of what you are doing, soberly assessing the risks.
Author Ganesa K.
A professional investor with 5 years of experience working with various financial instruments, runs his own blog and advises investors. Own effective methods and information support for investments.
Structure and features of savings and expenses
Expenses, or in other words, the amount of money that we spend to satisfy our own needs through the purchase of goods/services necessary to maintain an appropriate standard of living (health, food, transportation, clothing, education, housing maintenance), depend on a large number of factors.
The most important of them is the propensity to consume and accumulate, individual for each person. It depends on many parameters:
- prices for goods/services;
- availability and scale of own capital;
- taxation;
- family income level;
- psychological factors;
- character traits;
- existing debts or obligations.
The macroeconomic model of this indicator is determined by the ratio of consumption to income:
APC=C/Y.
The income received, which is not directed to the consumption of goods, leads to the formation of free funds. They are the main source of investment.
