What is investing?

Investing is the process of allocating money with the hope of making profits. The asset or stock that is being invested in is referred to as an investment. Investment is therefore an asset or item that is purchased or invested in with the hope of making profits. An investment could be an endeavor such as a business or an asset such as real estate, stock, and bonds. Irrespective of the top of investment, the goal is to make profits. The spectrum of assets in which one can invest is very wide. But it is important to note that, in investing, risk and return go hand in hand. High risk means high returns while low risk means low returns. The investment that falls in the low-risk category includes a certificate of deposit, while high-risk investment includes bonds or fixed income. Stocks and equities are considered riskier while commodities and derivatives are seen as most risky. There are also other types of investments like land and real estate. 

The risk of investment can vary even within the same asset class. For instance, a blue-chip that trades on the New York stock exchange would be riskier than a micro-chip that trades over the counter. However, one thing to note is that the type of return or profit that would be generated on an investment depends on the asset. Some asset returns are paid as quarterly dividends while others are paid as interest.

Stocks: when an investor invests in a company's stocks, he or she becomes a fractional owner of the company. As such, the investor becomes a shareholder. A shareholder benefits through appreciation in the stock price and through dividends. 

Bonds: bonds are debt obligations of entities such as governments, corporations, and municipalities. Like stocks, buying a bond means that you are a shareholder of an entity’s debt and can benefit from interest on the bond. Your share of the interest would either be paid quarterly or annually. Also, as a shareholder, you would also benefit from the return on the bond's face value when it matures.

Funds: funds are pooled instruments managed by investment managers that enable investors to invest in stocks, bonds, commodities, and preferred shares. The two popular types of fund investments are exchange-traded funds (ETFs) and mutual funds. ETFs trade on the stock exchange and are constantly valued until their maturity date. Mutual funds, however, do not trade on an exchange, hence you get your total return when the investment matures. Mutual funds and ETFs are either managed by a fund manager or track indices such as the Dow Jones Industrial Exchange or the S&P 500.

Investment trust. Like funds, trust is another category of pooled investment. The most common type of trust is Real Estate Investment Trusts (REITs). REITs invest in residential or commercial properties and pay regular returns to their investors from the money earned from investment. Aside from landed properties, REIT also invests in stocks. This helps to hasten their payment of returns to investors. 

Alternative investment

This is an encompassing kind of investment that covers private equity investment and hedge funds. Private equity enables companies to raise capital to expand their business without going public. While hedge investment hedges their investment bets by going into long and short stock and other kinds of investment. These two types of alternative investments are usually given to people of affluent deemed “accredited investors” with certain net worth. However, in recent times hedge and private equity have been made available to retail companies.