Investments in the economy: about investments in simple words

Attracting investment is important both for business and for the economy of cities and even entire states. Additional finances allow you to develop more actively without postponing growth for the future. For example, modernize production, create new jobs, build roads and housing, develop transport, improve city parks and streets. All this gives more opportunities and ultimately improves the quality of life. We continue the series of publications “Moscow Economy in Simple Language” . This time we tell you what investment is and how the capital attracts capital.

Directions of investment

Today, financial markets provide many investment opportunities. The main areas of investment are:

1. Stock market. It is a platform for trading securities - stocks and bonds. It is characterized by high liquidity and profitability, which are offset by the serious riskiness of investments.
2. Real estate. Divided into residential and commercial. A characteristic feature of investing in real estate is reliability, which is achieved by stable demand for such assets.
3. Business. In this case, there is an investment in starting your own business or a promising startup. In both cases, the investor receives the right to influence the management of the business and participate in its direct development.
4. Raw materials. Their number is very large, but investing in such commodities as oil, gas, agricultural products, metals, etc. requires a serious and responsible approach, as well as large investments.
5. Precious metals. Includes gold, platinum, silver, palladium, etc. They combine high liquidity, stable value and serious investment prospects.
6. Forex. Relatively new market. It is characterized by high risk and profitability. Suitable for short-term speculative investment. There are practically no long-term investments.

The above list demonstrates an extensive investment toolkit. Correctly determining the direction of investment is the first and most pressing question of interest to both experienced investors and beginners. The answer to this depends on personal preferences and the tasks facing the investor.

Investments and personal finance. Part I: How money appears for investments

Where to find money for investment and how to invest so that your financial well-being grows? We have prepared answers to these and other questions in a special series of materials. In this part, we will take a closer look at the first steps from consumption to investment.

Why should you invest?

Personal Finance Life Cycle

Throughout our lives we deal with money. We earn and spend them, try to accumulate and increase them, think about where to get them from and where to invest them later. Despite all the diversity, the financial history of most people is as follows:

After entering the workforce, income increases, reaching a peak between the ages of 35 and 50, after which it gradually declines. This means that capital is needed for a comfortable old age. There is a common expression: “In the first years, the student works for the student, and in the last years, the student works for the student.” The same is true for investing. First, the investor works for capital, so that later the capital provides the investor. And the sooner you start your investment journey, the more abundant life you can afford in the future.

Financial cushion

Sometimes circumstances force us to unplannedly spend an amount exceeding our monthly income. Emergency treatment, car or home repairs, loss - all this can throw you off track financially. In such a case, it is useful to have a cash buffer equal to 3-6 months of income. Such a pillow will provide not only protection from financial difficulties, but also psychological comfort due to the very fact of its presence.

Passive income

Buying an apartment and renting it out is the simplest way to generate additional passive income. When part of the monthly costs is covered by income that does not depend on direct labor, this significantly improves the quality of life and psychological comfort. Real estate is an expensive asset. But you can receive interest on bonds or dividends on stocks from much more modest investments. An amount of 1 million rubles placed at 8% per annum can bring a little more than 6,500 rubles. monthly. Any ideas on how to spend this money?

Save up for Tesla

Previously, people saved up for a Ferrari, now the “green” Tesla is in fashion. In principle, here you can imagine any purchase that does not fit into the monthly budget, be it an apartment, a car, a summer house, a trip to Europe or Play Station 5. You can save more efficiently if you save money at interest. Over long distances, the effect of compound interest will be especially useful.

From consumption to investment

The recipe for saving money is simple: you need to earn more than you spend and invest the difference. Following this scheme, it is easy to identify three main ways to increase the efficiency of capital cultivation:

• Cost reduction
• Increasing income
• Increased return on investment

In theory, nothing complicated, but in practice it is not so easy to ensure a stable delta between income and expenses. If there was money, there would always be somewhere to spend it. An excess is rarely formed, so it is necessary to create it artificially.

To do this, a contribution to the piggy bank must be made immediately after receiving income. Then you will no longer be able to spend everything you earned. Make a rule: immediately after receiving a salary/bonus/profit from business, set aside 10% or another comfortable amount. From unplanned income, such as bonuses, gifts, inheritance, sale of unnecessary things, it is recommended to save from 50% to 100%.

This simple rule is key in the capital formation process. It allows you to develop the healthy habit of saving money and planning large purchases.

What do we spend money on?

It is very important to start keeping statistics of income and expenses. This is a routine task, but today there are a lot of tools that make this process easier. A wide range of mobile applications allows you to simplify reporting. Most of them make it possible to visually present a diagram of expenses and evaluate where the leaks are through which cash flows out of your wallet.

In general, all expenses can be divided into three large categories:

1. Fixed expenses - expenses that are stable from month to month: housing and communal services, loan payments, Internet and mobile communications fees, fitness subscriptions, etc.

Review your mobile and Internet tariffs - they can often be easily reduced by 10–20%. For gasoline, fitness and other narrow categories you can often find cards with an attractive cashback of 5–7%. Evaluate the possibility of refinancing your loan at a lower rate.

The savings here will be small, but it will not require significant effort. It is enough to review your fixed expenses once a year and optimize them so that you spend less without a significant loss in quality of life. The money saved can be added to the amount set aside.

2. Variable expenses include those expenses that are repeated from month to month, but their size may fluctuate: food, entertainment, clothing, inexpensive equipment, car maintenance, gifts for relatives, etc.

This is where the greatest potential for cost savings lies. This is especially true for the “food” and “entertainment” categories. According to statistics, impulsive purchases in the style of “treating myself to something delicious” or “I’ll buy that cool thing” take up about 10-15% of the monthly budget. Often it is more rational to put this money aside to spend on more meaningful things.

Budgeting is a good tool here. Set aside a certain amount for these categories for the month and divide it into 4 weeks. Then, if possible, this amount can be carefully reduced by refusing useless expenses and finding stores with lower prices.

3. Large expenses include purchases that do not fit into the monthly budget: expensive furniture and equipment, tour packages, cars, real estate.

These things can have a much greater impact on your quality of life than household expenses. However, there is often no money left for them when there is no habit of saving part of the income. As capital grows, such acquisitions will become increasingly accessible.

Before making large purchases, you should carefully study the market and choose the best offer in terms of price/quality ratio. If earlier this could take a lot of time, now all the information can be obtained by giving up social networks for an hour and carefully scanning the offers on the Internet and thematic blogs.

Don’t be shy about asking for a discount - very often there is an opportunity to buy cheaper, even if we are talking about purchasing from a large retail chain. Sometimes you just need to ask. In the case of expensive purchases, plus or minus 1% already makes a difference.

We figured out where free money for investment can come from. Read about how to set financial goals and invest in a way that makes them easy to achieve in the second part of the series on personal finance. Follow our publications!

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BCS World of Investments

Types of Investors

Investors are classified according to several criteria. Based on the volume of operations carried out, institutional and private investors are distinguished. The former are engaged in the accumulation of funds from the latter for the purpose of subsequent management. Examples of such organizations are brokers, banks, and various investment funds.

A private investor invests his own funds. He often does this by transferring financial resources to the management of professional stock market participants. This approach minimizes the knowledge requirements of the investor and reduces his personal risks.

According to the nature of the investment strategy, investors are divided into passive and active. The first place priority on the reliability of investments. At the same time, you have to sacrifice profitability, which is quite logical: the lower the risk, the lower the profit received. An active investment strategy is used, for example, in the Forex market. It is typical for speculative investors who invest on a professional level.

Another criterion for classifying investors into types is the psychological assessment of the chosen investment strategy. Based on this parameter, three categories of investors are distinguished:

• aggressive. Includes the most active investors from the previous classification. They are willing to take risks and receive increased profits for it;
• conservative. Investment risk is minimized. A cautious strategy of investing in assets with maximum reliability is used;
• moderate. They combine the behavioral features of the two categories of depositors described earlier. They try to find a balance between the level of potential income and risk in the investment process.

According to the level of qualification, investors are divided into unskilled and qualified. The former refers to ordinary market participants, the latter – professionals, in most cases having a license or other permits.

The final criterion for classifying investors is the purpose of the investment. This parameter distinguishes between strategic and portfolio investors. The former invest independently, the latter with the involvement of professional stock market participants.

Let's sum it up

So, we found out who a private investor is, what he does and what are the basic principles of safe investments. To start working with a Global Alliance broker, you only need 2 things - a minimum starting capital and a desire to master the science of investing, and the company will provide everything else!

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Investor risks

Investment activity is inevitably accompanied by risks. They are divided into several groups, each of which deserves a more detailed consideration. These include the following types of risks:

1. System. They represent external factors in relation to the investment object. We are talking about inflationary processes, exchange rate fluctuations, the key rate of the Central Bank, etc.
2. Non-systemic. Includes factors that directly affect the investment object. For example, credit or industry risk, lost profits, management errors and other similar parameters.
3. Speculative. Provide for dishonest actions of individual market participants, for example, aimed at conspiring or sabotage in relation to third parties. The basic principle of the investor remains unchanged - the higher the risk, the greater the possible profit.
4. Legal. Includes changes in the regulatory framework. They are a type of systemic risk, since they are also little predictable and are not subject to influence from the investor.
5. Personal. Personal characteristics of the investor. They provide for the level of professional training, knowledge and skills in terms of analyzing the information received.

The basic task of any investor is to minimize risks. A parallel and also very important event is increasing investment profitability. Finding a balance between two multidirectional processes allows you to achieve your goals in the form of preserving and increasing your own capital.

Investor rights

In addition to risks, investment activity provides for a certain set of rights for the investor. It includes several basic functions, including:

• making investments in accordance with current rules and current legislation in this area;
• independent choice of investment directions;
• if necessary or desired, conclude contracts for representation of interests with professional market participants;
• possession and disposal of legally acquired investment assets;
• transfer of the right to manage capital to third parties who have the necessary licenses and permits;
• pooling your assets with the capitals of other investors to make collective investments within the framework of current legislation;
• use of other rights granted by the current version of the regulatory framework.

The above list can hardly be called exhaustive. But it clearly shows the diversity of investor rights, which are reliably protected by the current legislation in Russia. Any state strives to create a financial environment favorable for investment, as it contributes to the development of the country’s economy.

Let's define the terms

How to define investment in simple words? You can do this:

• Investment is the investment of money or other valuable assets in a project to make a profit.
• The investor is the owner of these assets and the recipient of profit from them.
• Investment returns are always associated with the investment. And the investor’s own work and other efforts are useful, but not mandatory.

In economics, investments are described more complexly and strictly; lawyers have their own definitions. But for practice this is not particularly important. If some investment brings income, let’s call it an investment without looking at the theory.

Investment situation in the world

Practice clearly demonstrates that without creating an effectively functioning investment market, it is extremely rare to achieve the formation of a successful economy. That is why the largest and most developed states become the most attractive for investment. Among them:

• USA. Investing in the stock market is a common practice for a large part of the population (more than 50%). Institutional investors and other related systems are well developed;
• Japan. Approximately 40% of the country’s adult population actively invests in various formats. The Central Bank of the state works with high intensity, including in terms of protecting the rights of depositors of all categories;
• India. The weak development of the investment market is one of the main factors restraining the growth of the country's economy. The number of investors is one and a half percent of the adult population, which does not allow accumulating a sufficient amount of investment resources.

The current investment climate in Russia is closer not to developed countries (USA or Japan), but to India. This is not surprising given the relatively small number of active investors. Their number has been increasing rapidly in the last few years, which gives grounds for positive forecasts. The number of stock market participants today is more than 3.5 million people, which is already several times more than the same share of the population in India. We can only count on the continuation of the positive trend and further rapid growth of the domestic investment market.