Investing is the act of legally creating a contract, by which one pledges something as collateral. To invest literally means to put money into an account or an agreement with the intention of receiving a return in the near future. Simply put, to invest simply means having an investment or a valuable asset with the intention of making money from that investment or the gain of your investment over a reasonable length of time. Some of the most common forms of investments include treasury bonds, stock certificates, mutual funds, etc. While there are many types of investments available today, some of the more common ones include stocks, bond funds and real estate. With the possibility of investing in real estate, a lot of people often wonder what exactly is meant by investing.
In simple terms, investing means buying low and selling high. This also applies to the mutual fund or any other type of mutual funds. Many investors make the mistake of investing too much in one area and then holding on to that investment for the long-term, hoping that it will grow in value. However, this rarely works out, especially if it’s a value investor.
On the other hand, it’s important to remember that when you diversify your portfolio or your investment portfolio, you should mix it up. When you diversify, you spread your risk amongst a variety of assets, which allows you to increase or decrease the potential returns in any given area of your portfolio. As such, investing in stocks, bonds, mutual funds, real estate, commodities and so forth should form a large part of your overall asset allocation strategy.
Diversifying your portfolio by spreading it across many different types of investments is not as complicated as many people may make it seem. Simply put, investing in a variety of different types of securities (such as stocks and bonds) allows you to create a safety net or to protect against risk. For instance, if you have money invested in some stocks but not others, you will have some risk without a safety net. However, if you have mutual funds that include stocks from many different companies, you will be protected against risk if one company goes bankrupt or loses value. If you are a long-term investor, you can use your money to generate income by investing in real estate, the commodity market or the bond market (although this type of diversification typically requires more time and effort).
There are many ways to invest, regardless of whether you choose to diversify or not. Of course, many investors don’t want to take the time to do it, but if you plan to continue living in the same house as your parents until they pass on, you may as well be investing in them! Regardless, investing can be a beneficial venture for many people and offers a good return on your investment dollars.
Diversifying is often overlooked by new investors who want to get started investing because it is assumed you can invest only in equities (e.g., stocks and bonds). This is simply not true: Property, which includes houses and other commercial structures, is another great way to increase your wealth with little effort. In fact, there are now many ways to invest in properties. For instance, there are now many ETFs (exchange traded funds) which allow you to invest in different kinds of properties. As an example, there are ETFs that exclusively invest in apartments, single family homes, condos and townhouses, allowing you to gain exposure to different types of properties. And there are even some specialty ETFs that concentrate on certain types of industries such as energy, medical and technology.