Why Investing is Important?
Investing refers to the buying and selling of financial instruments such as stocks, bonds, mutual funds and other money market instruments on the stock exchange. Investing has been a common practice since the advent of money and its ability to make trade between people, it was the main way of making trade until banks were introduced in the market. In today’s market it is not uncommon to find all kinds of people from all walks of life investing their hard earned money in different financial instruments, be it stocks, bonds, mutual funds and even real estate. There are investors who have been in this business for years and there are others who are just starting out. The reason behind investing in a financial instrument is to make a profit by using the interest gained on that instrument and in return, receive a return on the initial capital.
Investing is all about buying and selling securities and earning returns for your money and investments. To invest properly means to invest money with the intention of a profit/return in the near future. Simply put, to invest simply means owning an entity or an item with the intent of generating an income from your investment or the appreciation of the invested amount over a certain period of time. There are different types of investments, some of them are common, while others are much more complex. Some examples of common investments include stocks, bonds, mutual funds, real estate, commodities and many more.
Most people tend to diversify by investing in different investments in order to gain maximum profit and lower risks. Diversification helps in protecting against fluctuations in prices and helps in reducing the risk of loss in case of one particular investment. Some of the common diversification strategies include: buying and holding on to stocks, bonds, mutual funds and real estate. By diversifying, you will ensure minimum risk, maximize the returns and avoid tax implications when one of your investments performs poorly. Diversifying your portfolio not only increases the possibility of gaining higher returns on your investments, but also help in maintaining a healthy financial status.