What is Investment? Definition, Types, and Benefits

Do you want to make more money and have stable finances? Investing is one of the best ways to achieve that goal. However, if you don't know what investing is or how to get started, this article will provide a complete guide to understanding investing for beginners.

What is Investment?

Maybe you've often heard the term "investment". However, what exactly is an investment? Why can the activities listed above benefit us?

Forbes states that investing is the process of buying assets whose value can gradually increase in order to make a profit. However, in the world of finance, investing means buying securities, property and other valuables to generate capital gains or capital gains.

Investment is when you buy an asset at a low price and then sell it at a higher price. In investing, we must be aware that not only will we get profits, but there will also be risks that can cause loss of profits. Investments with low risk will usually yield meager returns. Conversely, high-risk investments can generate greater returns.

Types of Investment Based on Time

Investments are usually divided into two categories: short term investments and long term investments. Short-term investments are made in a short time, while long-term investments are for the future, so investors need a long time to enjoy the results. Here's the difference between the two:

Short Term Investment

Short term investment can be started with small capital. Many instruments can be started with hundreds of thousands of dollars. In addition, the fast investment movement increases the risk offered. There are a number of variables that influence this, one of which is the unstable market price movement. Short-term investments are intended to meet needs in the near future and have a minimum term of one year.

Long term investment

To maximize profits, long-term investment requires additional funds because the benefits of this investment are quite large in terms of capital. Because the movement of money is not fast, long-term investment also carries a lower risk. Therefore, patience is very important when making this type of investment. Long-term investments require a minimum of five years, making them suitable for preparing for future retirement funds.

Types of Investments Based on Their Forms

Investment in Property

Property investment is investment in assets such as houses, apartments, boarding houses, commercial buildings, and even land. The main goal of property investors is to profit from increasing property values ​​and rental income.

Property investment has many advantages, one of which is its value which continues to increase every year. Its main drawback, however, is that it is difficult to cash out in a short time and the maintenance fee is expensive.

Gold Investment

One of the other ways to become richer is by investing in gold. Considered a stable asset, gold has a tendency to increase over time. This precious metal can be purchased in many forms, such as jewelry, bullion, or even stocks. 

Gold investment has many advantages, mainly because its value almost always increases every year and has a lot of liquidity because it is easy to sell. Unfortunately, investing in gold is not suitable for the short term, and the price tends to fall when the economy stabilizes.

Stock Investment

Company shares can be bought and sold on the stock market. Investors hope that the value of their shares will increase, so that they can sell them for a profit.

Indeed, stocks have a high risk high return principle, which means that the risk is very high and cannot be accepted by people with a low risk profile. However, if you plan to make long-term investments and are used to high risks, then stocks will be the best option, because the returns are quite high.

Crowdfunding Investment

An increasingly popular type of investment, crowdfunding, allows investors to make donations or loans to individuals or companies seeking capital. This gives small investors the opportunity to invest in large projects.

Compared to various types of investment, crowdfunding offers many advantages, such as convenience and ease of investing, bigger and socially impactful projects, and high potential returns.

Established since 2018, Bizhare has been trusted by more than a hundred Indonesian investors for dozens of interesting projects. Thus, this platform allows you to start crowdfunding investments. The full comments can be read below.

Mutual Fund Investment

Mutual funds are a type of investment in which the investment manager buys stocks, bonds and debentures with the investor's money. 

Mutual fund investment has the main advantage, which is risk diversification, which means that profits can be maximized and losses can be minimized. The only drawback of investing in mutual funds is the purchasing and management fees that must be paid, as well as the competence and performance of the investment manager.

Deposit Investment

Mutual funds are a type of investment where a person deposits money in a bank for a certain period of time. In return for the money deposited, the bank pays interest to customers, which is usually higher than interest on ordinary savings.

Because the customer's money will be guaranteed by the Deposit Insurance Corporation (LPS) of up to IDR 2 billion, deposits cannot be taken before the expiration date except by paying a fine. This shows that deposit investment has a very small risk of loss.

Bond Investment

Bond investment is a type of investment that provides returns in the form of interest within a certain period of time. Bonds are issued by companies or governments to borrow money from investors and have more stable returns than stocks. Thus, investing in bonds has a lower risk than investing in stocks.

In addition, bond investing offers a diversification of risk because you can buy bonds from many different types of companies or governments. However, bond investments also present credit risk, i.e. the possibility that companies or governments will not be able to pay the interest or principal on their debt. In addition, the returns on bond investments are usually lower than stocks.

Cryptocurrency Investment

Cryptocurrency is a type of investment that uses blockchain and digital technology, such as Bitcoin, Ethereum and Litecoin. Cryptocurrency can be obtained through the process of mining or purchasing directly on the crypto market. The profit potential of cryptocurrency investing is very high because of the transaction speed and low fees.

However, considering that the price is very volatile and can change in a short time, the risk of this investment is also high. Because cases of data theft and leakage often occur, cryptocurrency security is also of great concern.

Investment Benefits

1. Avoid Inflation

Asset values ​​decrease every year due to inflation; however, with investment, asset values ​​will increase, offsetting inflationary scours.

2. Increase wealth and value for money

Investment aims to increase the value of wealth. For example, if you have a gold investment whose price increases every year, you will definitely have more money to increase your wealth.

3. Emergency needs

You can definitely use the assets or funds that you have invested when you need funds for a need. You don't need to bother looking for a loan because the investment is still closed.

4. Anticipate future needs

By investing, you can prepare money for future needs. Examples are the cost of marriage, children's education, health, and other things. With investment, you can reduce the costs associated with this need.

5. Get financial freedom

When you have financial freedom, it means you have enough money to meet your daily needs.

6. Become better prepared for retirement

One definitely won't work all his life, so investing helps prepare for the future.

Get ready for a good future while you are young. You can not only save, but also invest and take advantage of the compounding effect to prepare for retirement.

7. Train in decision making

Now there are many investment options, so you have to choose the best.

You must also have the ability to make financial decisions. Your analytical skills will be enhanced through the various challenges that you will face. You will also learn more about investing over time.

8. Improve Understanding

Investors will often ask and brainstorm about which investment product is best suited for them, so they will be part of many relationships.

You may also become a reliable financial planner because your knowledge of economics and finance will broaden.