Investment: What is it, characteristics and types - GovtVacancy.Net

Investment: What is it, characteristics and types

When investing, some type of profit is sought in a certain period of time, taking into account its profitability and assuming a certain risk.

Investment Definition

Investment is an action that alludes to the destination of some type of resource to obtain benefits. In economics, these resources are: time, capital, and labor.

Therefore, when one or more of these resources are used to obtain profits in the future, an investment is made.

Every investment carries with it a risk, and the return on each investment is proportional to its risk. That is, the higher the return, the higher the risk, and vice versa.

However, the fact that an investment represents a high degree of certainty in its return (although little profitability), does not imply that the operation is totally safe, since there may be unpredictable events that could affect the solidity of the investment.

Investment Characteristics

• It implies allocating some resources (time, capital, and/or work).

• Seeks to profit from it.

• It carries some risk.

• Gains or losses are realized after a certain period of time.

• The resources used can be tangible or intangible.

Investment Types

Depending on the time:

• Short-term investment: These are investments made to obtain short-term benefits, generally less than one year. In this period, the investor wants to recover his initial investment and also generate profits.
• Long-term investment: These are investments made with long-term benefits in mind, generally greater than one year. In this type of investment, the investor wishes to keep the properties acquired and expects the virtues that a long-term operation usually offers: less risk, greater profitability, carefree, compound interest, etc.

Depending on your strategy:

• Aggressive investment: It is a strategy that consists of investing in highly liquid instruments, with a high level of risk and high yields, to obtain large profits in a short period of time.
• Conservative investment: It is a strategy that seeks to invest in instruments with low liquidity, with a low level of risk, and modest returns, to achieve stable profits in the long term.

Elements of an investment

• Yield: It is the return on an investment. It represents the performance to be obtained with respect to the resources used. It is usually measured in percentages.

• Term: It is the time that you want to keep the investment. In general, there are 2 times: short term and long term. Which indicates that an investment can be less than or greater than one year. However, this concept is not fixed, since there may be more periods of time, such as the medium term.

• Liquidity: It is the capacity of said investment to be transformed into cash quickly and without losing value. That is, it indicates the solvency that the owner of an investment has in selling his property at a good price and quickly.

• Risk: Represents the probability that an investment will go wrong. This probability depends largely on the performance of an investment, since the risk is higher when the return is higher.

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