Investments and finances in a general sense are considered as means used to obtain a certain positive result. It can be monetary, defense, intellectual, social, and so on. Such an interpretation of these concepts is beyond the scope of economic considerations. From this point of view, investments and finances act as a tool for generating a large amount of money, generating income or increasing capital. They can also be used for both.
The essence of investing
The above definitions interpret this concept as a means of increasing equity and a method of achieving non-economic goals. For example, the state, investing from the budget in the development of astrophysics, does not expect to make a profit. However, the injection of capital into this area allows us to conduct important research work. In the narrow sense, investing involves the increment of invested capital. A general definition is given in federal law. In accordance with its provisions, investments are considered as securities, cash, other property, property rights with value. They are invested in objects of business or other activities to generate income or achieve another useful effect. Capital investments are considered as investments in fixed assets. These include, but are not limited to, the costs of re-equipping, building and reconstructing existing enterprises, the costs of acquiring equipment, machinery, inventory, tools, as well as design and inventive activities, etc. Investments are considered more broadly than capital investments, and in a narrower than cost sense. Costs, for example, can be lump-sum and ongoing. The first can be attributed to investment.
Implementation Features
The modern economic system provides for various types of investment. The contribution of funds is carried out in certain programs, the implementation of which allows us to achieve our goals. They are presented as a set of actions and activities that do not contradict legislation. Investing in projects is carried out over a certain period. In the above Federal Law, the concept of a program is presented as a justification of economic feasibility, terms and volume of capital investments. The legislation also refers to this category of documentation developed in accordance with applicable standards, and approved according to existing standards and in the prescribed manner. An investment project is, among other things, a description of practical measures for investing (a business plan). The law introduces an additional concept. In particular, the provisions provide for such a definition as “priority project”. It is considered as a set of measures with a total amount of capital investments that meets the established requirements and is included in the list approved by the Government.
Subjects
Practical implementation - the beginning of investing - is unthinkable without the implementation of certain individual or collective activities. The integral elements of this work are the subjects and objects. The first include organizations and citizens who carry out targeted activities in the process of solving the tasks set in investment projects. The subjects are:
- Contractors (performers).
- Customers
- Investors
- Users of objects.
- Other participants.
Legislation provides an opportunity for one entity to combine the functions of two or more project participants, unless otherwise established by a state contract or contract.
The objects
They include various property created by organizations and enterprises of the non-manufacturing and manufacturing sectors, certificates, bonds, stocks and other securities, products of a scientific and technical nature, property and other rights (including intellectual property), cash deposits. Among the objects of attachment can also be distinguished:
- Exploration work.
- Objects of communication and transport.
- Housing construction.
- Agricultural objects.
- Structures of the social sphere (educational, medical, cultural and educational institutions), etc.
Classification
Investment strategies are formed on various grounds:
- Attachments.
- The timing of the investment.
- Forms of ownership.
- Territorial focus.
- Sources of funds.
- Economic spheres.
- Industry focus.
- Opportunities to participate in management and so on.
The main one is the classification of investment activity by objects. In accordance with this sign, financial and real investments are distinguished. The latter, in turn, are divided into intangible and material, the latter into portfolio, direct and other.
Real investment
The objects of material investments are constructions, equipment, building machines, etc. Intangible investments are aimed at acquiring licenses, patents, implementing programs for advanced training and retraining of personnel, and paying for research activities. In the framework of statistical practice, real investments are called deposits in non-financial assets. Their accounting is carried out according to the IMF Methodology.
Cash investment
Financial investments are presented as investments in bonds, stocks, certificates and other securities, as well as in bank accounts. As mentioned above, they are divided into portfolio, real and other contributions. The first include investment in shares of AO to receive dividends and rights to participate in management activities. They are carried out by organizations and individuals who fully own the enterprise or control at least 10% of the share (authorized) capital or securities. Portfolio refers to investments in different types of shares that belong to different issuers to increase the likelihood of income. This category includes the purchase of bonds, shares, bills and other debt securities. Their share is less than 10% in the share (authorized) capital. Those investments that do not fall into these categories are indicated as “other”. Among them, for example, trade loans, government loans of foreign countries under guarantees and others.
Type of ownership
According to this criterion, as a rule, distinguish between foreign, private, state and mixed investment. For beginner contributors, appropriate teaching materials are developed that provide an extended classification. In particular, in statistical practice, municipal contributions, participation in consumer cooperatives, religious and public organizations are distinguished. Mixed investments are classified into joint domestic and Russian-foreign.
Other criteria
Statistical practice uses classification according to areas of use. For example, investments in fixed assets are divided by ownership, economic sectors and so on. Depending on the regional (territorial) characteristic, internal investment should be distinguished. For novice subjects of the activity in question, they often act as the most simple and effective tool for making a profit. Investments in the domestic economy are divided, in turn, by region. In addition, there is external investment. For beginners, this option can also be a very promising way to increase capital. Depending on the economic sphere, production and non-production types of activity are distinguished.
Risk degree
On this basis, there are different classifications. Books on investing distinguish, for example, categories such as conservative, aggressive, and moderate investment. The former are characterized by low risk and high liquidity. The latter category is characterized by moderate probability of occurrence of loss. Aggressive investments are characterized by high profitability and risk, low liquidity. In accordance with another classification, high-, medium-, low- and non-profitable investments are distinguished.
How to start investing?
From scratch, earning in the field of investments will not work. To get income, you must have certain funds. Before you start investing, you need to check the status of finances. In modern conditions, the cost of living is growing quite quickly, mandatory payments are increasing. In this regard, the funds that were planned to be invested somewhere may not be enough.
Basic principles
Knowledge of them is necessary in order to competently invest. Where to begin? In which program to invest? How much money is needed to make the first investment? For beginning investors, these questions are the most relevant. To navigate the system, you need to know the basic terms and understand them correctly. In this case, the decisions will bring the desired effect. You need to understand the difference between a deposit, mutual funds, bonds, shares. It is advisable to study a number of economic theories. For example, it is useful to explore issues related to portfolio optimization, market efficiency, and diversification. All useful information contains books on investing. These publications explain the basic terms that you need to know, provide various investment schemes, and examples. In addition, the largest domestic brokers provide the opportunity to attend online investment courses. Seminars on this activity are also quite popular.
goal
Any investment guide contains this item. Before investing, you need to determine the purpose of this operation. In general, all investors seek income. However, the profit will be used in different ways. The purpose of the investment will depend on age, worldview, life plans, work experience, the specifics of professional activity and other circumstances.
Determination of acceptable risk
Immediately before making an investment, it should be established what level of probability of loss the subject can take on. In this case, it will depend more on age. As a rule, young people are willing to take risks, invest, lose, invest again. The older generation, by contrast, is committed to sustainable income generation. Existing investment projects involve a different level of risk. From them you can choose the most suitable.
Own style
He is selected in accordance with the attitude to risk. Investors can be conservative or aggressive. In the first case, depositors keep about 70-75% of their savings in low-risk assets (government bonds, for example). The most aggressive investors are characterized by an investment of 80-100% of capital in stocks.
Deposit value
The higher the payment for the purchase of assets, the lower the return on investment. As a rule, the passive method involves the lowest costs, and trading - the maximum. In the stock market, a commission is charged for operations. It is received by brokers. For novice investors, it would probably be advisable to turn to cheaper agents or lower tariffs. But in this case, the service is likely to be limited. At the same time, an additional payment will be required to perform any non-standard action. If investment is made in mutual funds, experts recommend that you carefully study the sections of the agreements regarding mark-ups and discounts, as well as commissions for successful investment.
Agent Search
This stage is considered crucial for a novice investor. When choosing a management company or broker, you need to pay attention to:
- Reputation.
- Long-term performance.
- Compliance of tariff plans with the chosen investment style.
It is advisable to view the ratings of brokerage companies, get acquainted with the reviews, consult with specialists.
Select an attachment
Experts recommend dividing the available capital into three parts:
- For bonds.
- For stocks.
- Cash balance.
The funds that will be invested in stocks and bonds should be split into several parts. They can be invested in various securities. Cash may be required to pay the broker and to make any purchases in the coming periods. The size of the shares into which the funds will be divided depends on the style of investment. Similarly, you can split the capital for investment in mutual funds, deposits.
Controlling emotions
Often, income generation is limited to fear or greed. Any investment portfolio is subject to short-term fluctuations. In some cases, they can be very noticeable. In such cases, do not panic or rejoice too much in sudden success. If a feeling of concern for your money begins to bring inconvenience, it is advisable to review it so that it is more consistent with the style and goals of the investment.
Investment review
At the initial stages of investing, entities acquire bonds, shares or stocks according to a specific plan, distributing probable risks and estimated profits. However, over time, it may turn out that the value of one part of the assets has risen sharply, while the other has fallen. This situation will change the ratio of securities originally pledged to the portfolio. And this, in turn, violates the investor's plans. In such cases, the portfolio is rebalanced. This procedure consists in the sale of a part of the more expensive ones and the purchase of a part of the assets that have decreased in price.