It is possible to increase the profitability of a company and increase personal capital by investing free funds in new projects. Investments can also become unprofitable if the owner of the funds chooses the wrong direction.
Investment concept in simple words
The simplest way to understand what an investment is with the example of bank deposits. The owner of the money entrusts his savings to a financial institution for a specified period. At the end of the agreed period, the funds are returned to the investor and interest is paid for their use. This option is as safe as possible, because the bank independently finds projects in which it earns with borrowed funds.
Investing activity carries great risks if one approaches investments without a thorough audit of projects.
The most popular areas for investment:
Purchase of land.
Acquisition of real estate, including non-residential / industrial premises.
Reconstruction of existing buildings, its major reform.
Investments in a business already done (own or someone else’s).
Purchase of copyrights, patents, licenses and other intangible assets.
Not all types of investments are available “directly” to private investors. As in the case of a bank, there are organizations that raise funds from individuals, which, as they become available, are distributed among the commercial projects financed.
The difference between financial and real investments
There are many ways to invest. In addition to buying equipment to expand production, residential real estate for subsequent lease, there is the option to buy securities: stocks, bonds, bills. The latter requires that the investor have a good knowledge of the financial market, the influence of several fundamental processes in the rise / fall of the value of the assets acquired.
Investments are returned gradually, depending on the profitability of the project.
All the types of investments found are divided into two conditional groups:
True. Investments in inventories, fixed assets and intangibles.
Financial. They become an independent form of investment through the issuance of shares, bills of exchange and other securities that are presented in the market in the form of a “commodity”.
The first option is more common in commercial organizations, where the profit can be shown as profit or invested in the development of your own company or in the opening of new areas of activity. The second option is more suitable for private investors. When investing in securities, the risks of incurring significant losses are lower, as the professionals actually manage the funds.
Investment attraction options
Over time, any company faces the problem of falling profitability. If this factor is not calculated in advance, management may face the fact that the only option will be the liquidation (bankruptcy) of the company. This can be avoided with the timely modernization or reorganization of the company or the expansion of activities. But all this requires the attraction of additional funds.
Depending on the source of income, investments are divided into the following categories:
Private. You can count on them if you organize the issuance of company shares, ensure market entry, and create attractiveness for investors.
Express. Local and federal authorities are often interested in developing innovative activities and therefore subsidize certain areas at the expense of public funds.
Foreign. It may be necessary to expand activities abroad or to receive funds at reduced interest rates, which is more typical for European / US banks.
Regardless of the source of financial support, a preliminary audit of the project is required, the calculation of probable profits, even taking into account all possible risks. Based on a detailed study, a decision is made on the profitability of the proposal.
Building an investment portfolio
The smallest risks can only be guaranteed by dividing investments among several types of assets. In addition, it is recommended to select high-risk species with the probability of obtaining large benefits in a short time, together with lower-risk options, where it is committed to stability (although with a lower level of profitability).
The return on investment depends on the literacy of the choice of funded projects.
When selecting assets for investment, the following indicators are evaluated:
Difficulty evaluating profitability / risk. Both the availability of data on previous earnings and the ability to predict the future development of the situation play an important role.
The degree of risks (which directly affect the level of income).
Investment costs. This takes into account the minimum stake required to invest in an asset (initial amount).
Liquidity. Evaluate the possibility of selling assets at market prices in crisis situations.
Income predictability. The degree of “transparency” depends largely on the knowledge of the investor himself, how much he understands the external / internal factors that affect the value of assets.
The declared profitability of the project remains the key parameter. Its average value in the investment portfolio allows you to compare it with the total risks, to select such a list of instruments so that in case of a negative development of events, the investor receives at least a minimal profit.
Investing in stocks
Business investing often requires a large investment. Not all private investors, even coupled with government subsidies, can meet the needs of a modernized start-up or production from an experienced company. Therefore, they are trying to find a way to attract investment that is available to owners of modest savings.
The equity principle of investing allows you to start with a small amount.
Examples of equity investments:
Participates in the authorized capital of LLC. The investor actually becomes a co-owner of the business. The percentage of profit is not known in advance, it all depends on the success of the business manager.
A block of shares of a large company. The investor buys the amount for which he has sufficient funds. The value of each share is constantly changing, you can profit from the fall / rise in price.
Investment fund shares (UIF). The association owners themselves are looking for the most profitable ways to make a profit, investors are generally not notified of the details, but only receive final reports.
When investing in a mutual fund, data on the performance of previous periods is generally available. But it should be noted that the presence of a profit in past activities does not in any way guarantee its receipt in the future, the risks of loss are always present.
Despite statements about the guarantees of making a profit from any investment, most proposals still contain risks. They can be internal or external in nature, so not all hazards are predictable. The problem is partly solved when you build an investment portfolio that allows you to reduce the probability of losses.
An unfavorable market situation can generate losses.
Depending on the type of investment, there are risks of the following types:
Liquidity risk. The interest in the asset can drop dramatically and its value will be significantly lower than the purchase price, regardless of the current market state.
Inflation. Purchasing power in the market can decrease so much that all assets will lose a large percentage of their liquidity.
Badge. If the assets are related to foreign currencies, the devaluation in the domestic market leads to a decrease in the value of assets in terms of rubles.
Legal. Changes in the regulatory framework can reduce / increase the risk of incurring losses.
There are natural factors caused by man, but initially they are called force majeure and are prescribed in contracts as separate clauses. The rest can be “adjusted” with constant monitoring of changes in the financial market (national, global), with timely adjustments in the investment portfolio as new laws come into force.
Safe investment rules
It will be easier to reduce risks if the use of investment rules is considered at the portfolio planning stage. They are versatile and allow you to reduce the risk of your investment to a reasonable minimum. This option cannot be completely ruled out.
The security of the investment depends on the depositor’s compliance with the basic rules.
The following principles are the best known:
It is accepted to invest only free funds. Loans must be excluded from the portfolio due to excessive risk.
It is necessary to clearly draw up a list of objects where you plan to invest money.
Equitable investment of funds in various assets is recommended.
Before investing, you should carefully study projects, including investor feedback from previous periods.
Earnings up to the full return on the initial investment must accrue until the investment portfolio reaches 100% profitability.
You cannot give in to excitement and transfer a large amount of money to the riskiest projects, even if they have shown high profitability in previous periods. No one will be guaranteed to predict the level of profitability of any business.
Investing in real estate
Buying apartments or private cottages for the purpose of leasing them has a number of advantages and disadvantages. The same applies to the acquisition of office or industrial buildings. The risks of investing in real estate are reduced to an increase in the cost of housing and communal services, the level of taxes and other fees. Housing and property prices in general are relatively stable, the liquidity of this asset does not change significantly.
But there are many options to make a profit:
Apartment rental by the day or by the hour.
Organization of a guest house / hostel in a house or apartment.
Garage rental, office / industrial premises.
Buy mortgaged or repossessed real estate (usually at a discounted price) and resell it at a retail price.
Home purchase without repair, sale after self-restoration.
One of the most popular areas is investment in multi-story capital construction at the “foundation pit” stage and the subsequent sale of finished apartments at a higher price. In any case, a substantial amount will be required, here it is not always possible to do without the borrowed funds.
One of the options is to find a company that offers equity participation. In such projects, other risks arise: fraud, external circumstances of a natural and anthropogenic nature (earthquakes, hurricanes, etc.).
Investing in gold and other precious metals
The advantage of investing in gold, silver, platinum and other precious metals is the preservation of their liquidity for a long time. Changes in the political system or financial crises in the global market have practically no effect on the value of assets. In certain periods, the price can go down, this should be used to find the most favorable moment for the purchase.
Investments in precious metals have the following characteristics:
Unlimited useful life of assets, no risks of damage to metals due to corrosion, atmospheric influence.
The need for security. The value of assets makes you think about their security against theft.
Versatility. Gold, platinum, and other metals are liquid in any country.
You can also observe the complete independence of investment in precious metals from the political and economic situation of the country. All metals allow you to choose the amount of investments according to the availability of free funds, including the possibility of buying additional assets.
Investing on the Internet
If we cut the obviously losing options like HYIPs, there are still a lot of ways to invest through the Internet. Each of them only requires network access and a personal computer. Almost all banks and electronic payment systems allow online transfers without visiting offices.
The most common options are:
Trading in the Forex market.
Binary options trading.
Contributions to microfinance organizations (MFO).
Investments in online stores.
Purchase / sale of cryptocurrencies.
The best option is to distribute funds among several instruments. When building an investment portfolio, it is worth considering the difference in the minimum bar for different deposit options.