Investment Importance

Act by which an individual, a company or even a government decides to place part of its profits or dividends in an activity that allows you to obtain long-term profits and that prevents that capital from being lost or waste. At the same time, it addresses the spending that a State must carry out in different areas such as health or education and, therefore, it is not a waste, but something important and necessary for a population.

Applied on a personal level, and in the State

Investment is one of the simplest acts that can occur in the economy and that is precisely why it is important: whatever that has a minimum amount of capital can invest it and seek with that investment to obtain greater profits in the long run term. The investment is a serious decision that must be taken with time, sensible and thinking correctly about the different elements to be evaluated and which can mean gains as well as losses or risks that can bring the person back to zero or even trigger debts. However, when it is well carried out and planned, the investment is always recommended, since it represents a decision wise to put capital into something that can be productive in the future rather than waste it complete. An example of daily investment by an individual may be obtaining a house or apartment that, despite being a significant expense, is decidedly an investment, in the future since that good can be valued and, in addition, it prevents the person from spending resources in a disorderly manner and without control.

Likewise, investment encompasses systems designed by financial markets to increase the wealth of individuals and companies, not in vain, one of the main objectives of this economic strategy is based on obtaining benefits in the least space of possible time. Under these premises, a series of products have been created that fulfill this purpose, and that are collected by the regulatory bodies in the stock markets of each country.

On the other hand, the term investment refers to the decisions that a State must carry out regarding the way it manages the public income of a population. In this case, the investment is a political decision since by placing the money in some of the areas of government, the amount of money placed in others is limited. A very clear example of this is when a State that is a world power decides to invest a large part of its monetary capital in the military industry to maintain that position of power, leaving to invest in other areas such as social protection, health, education that should remain in private hands and that mean that a large part of the population must solve these problems on their own. bills. Another very different example is the one known as Welfare state, in which it is decided to invest and direct the capital to social areas such as education, health, work, housing, etc. in order to ensure the population a high quality of life.

Investment Products

The investment can be carried out in the fixed and variable income markets, alternative models and even in material goods, such as real estate. Among these products, the purchase and sale of shares in the stock markets, investment funds or ETF, S (traded funds), among some of the most demanded by the investors. Another of the formats is represented by the so-called hybrid products. These are those that have a difficult classification because they meet the characteristics variable and fixed income under its own conditions. Some of its models are the following: convertible bonds or preferred shares.

While derivative products are located on another scale and represent a type of investment with more risk. This is because it has a somewhat complex structure that leads to its profitability being higher than in other investment formats. But in the same way, they are very conducive so that investors less experienced in this type of operation can lose a very important part of their invested capital. Futures, options, warrants, or CFDs are some of the best known formats.

Investment particularities

In any case, one of the keys to carrying out an investment is the fact that the price of money loses value every year. Due to the effects of inflation, which in the European Union it has reached historic levels of 9.8% during the summer of 2022. And as a consequence of this monetary trend, the only solution to maintain (or increase) the capital materializes through investment. Another factor that invites this system of distribution of money is that it allows users to increase their personal capital to their particular interests. At the same time there will be more monetary resources to buy material goods. Or in the case of companies to expand in their respective sectors.

While on the other hand, the well-carried investment generates a multiplier effect on the initial wishes of the users. In other words, the surplus value of the operation can be reinvested so that in this way the benefits are greater than before. In the same way that it will make the assets increase depending on the profitability of the movements.

In practice, the investment will encourage the heritage to increase depending on the accumulated benefits. If 1,000 euros are invested every month, with a return of 5%, after a single year an additional 600 euros will be available. This amount would rise to 6,000 euros within ten years. Six times more than the capital invested from the beginning. Making it clear that in the investment the largest amounts invested prevail over the small savings bags. Although assuming that there is a risk of losing capital with the valuation of the financial assets purchased at maturity.

To determine the profitability that it can generate, it is enough to apply a simple operation: capital contributed x type of annual interest that is applied in the operation (or in its expiration) – amount of the commissions and other expenses that entails. The interest will not be uniform, but will depend on the conditions of the subscribed product or the evolution of the financial markets.

The role played by the fact that putting to work ours is a very effective strategy so that our savings or personal assets are not devalued or business. In addition, it will be very relevant to define our profile as an investor to optimize the operation: aggressive, intermediate or defensive. So that it is much easier to meet the objectives, especially in the medium and long term. Nor can it be forgotten that it is essential to carry out these movements when the money is not going to be needed for a while.

Likewise, it is a completely necessary operation for when you are going to start a business. Where the initial investment must be supported by own funds or as a consequence of the demand for some type of financing, as well as to refloat a company that has debts or its line of business is not as expected by the entrepreneurs. From this point of view, it will constitute a rescue to reconsider the viability of the company.