Understanding Investments

Financial Literacy Training also aims to create more investors and that’s their reason we cherish the topic on investment. “Investing is putting your money to use so as to allow it to grow”. An investment can be in form of property such as livestock (cows, goats, pigs), land (rental apartments, buildings), business [market stalls, grocery shops, public transportation (taxi, special hire or buses)] or shares, bonds and government securities from which you can earn profits”. A topic on investment enables participants to appreciate that Investments make a difference if they can generate higher cash flows in the future. It also saves them from investing in assets that do not appreciate in value over time

Investing is putting money into a financial scheme or commercial venture in the hope of making a profit. It comes with a potential risk of losing money—but also a potential reward of getting back more than you put in. in other words Investments are something you buy or put your money into to get a profitable return.

Most people choose from four main types of investment, which are grouped according to the characteristics they have in common. These are known as ‘asset classes’

• Shares – you buy a stake in a company
• Cash – the savings you put in a bank or building society account
• Property – you invest in a physical building, whether commercial or residential
• Fixed interest securities (also called bonds) – IOUs given in return for loaning money to a company or government.

The various assets owned by an investor are called a portfolio.

As a general rule, spreading your money between the different types of asset classes helps lower the risk of your overall portfolio underperforming – more on this later.

There are several different ways of investing. Many people invest through collective or ‘pooled’ funds such as unit trusts.

Returns in investment Returns are the profit you earn from your investments. Depending on where you put your money it could be paid in a number of different ways:

1. Dividends (from shares)
2. Rent (from properties)
3. Interest (from cash deposits and fixed interest securities)

The difference between the prices you pay and the price you sell for – capital gains or losses.With an instant access cash account you can withdraw money whenever you like and it’s generally considered a secure investment. The same money put into fixed interest securities, shares or property is likely to go up and down in value but should grow more over the longer term, although each is likely to grow by different amounts.

There are many different types of investment, and each one has a different level of risk and reward. Within each type, of course, different investments will also have different levels of risk and reward.