Many people assume investment and saving as the same thing; however, they are actually two completely different concepts of handling money. Saving is setting aside a part of the income that you wish to spend in the future, whereas investing is taking your money and putting it into financial instruments or products such as shares, bonds, funds, properties, and units.
Investment is also a method to generate income for yourself, which could increase over time. Investing allows you to put your money in places where it can potentially bring you strong rates or returns.
Why do you invest?
Since investment is essentially an asset used to grow your money, the wealth created can be used for a variety of objectives, such as meeting shortages in income, saving up for retirement, or fulfilling certain specific obligations such as repayment of loans, debts, mortgages, or tuition fees. Here are some other reasons for investing:
Start and expand a business
Investing is an important part of business creation and expansion. Many investors like to support entrepreneurs and other small ventures and contribute to tier creation and selling of products. Investing is a great opportunity that allows you to easily build your wealth and achieve your goals.
To keep money safe
Capital preservation is one of the primary objectives of investment for people. Some investments help keep hard-earned money safe from being eroded with time. You can ensure the safety of your savings through schemes and instruments such as fixed deposits or government bonds. However, you receive a low return rate from capital preservation.
Financial independence
The investment enables you to be independent and not rely on money obtained through loans and debts. Instead, it helps you to build your own wealth empire and ensures that you have enough money to pay for your basic requirements and emergency spending when you start running out of savings or in case of losing your job.
How to know if you made a good investment?
For a person trying to identify a solid investment opportunity among the plethora of available choices, there are many red flags you should keep an eye out for. These red flags could forewarn a potential loss, while positive signs could lead to a profitable investment. Here are a few characteristics you should look out for in a company before investing:
- Consistent revenue and earning growth
- Competitive advantage
- Income production
- Manageable debt
If a company has boosted sales throughout its lifetime, it’s reasonable to assume that its shares have the potential to increase in value over time. When considering revenue growth, you should consider the economic circumstances surrounding the performance.
A good market performance and strong historical data are clear signs of a good stock. You can learn about the inner workings of a company with a little research. All public stocks abide by a set of rules that can give access to balance sheets and other public filings that can tell about a firm’s cost structure, cash flow, major suppliers, business plan, etc.
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