Investment is an activity in which you put your money into assets that are expected to earn returns. This could include savings accounts, Certificates of Deposit (CDs), unit trusts and SICAVs (investment funds). In addition to direct investments, it is also possible to invest indirectly through intermediary financial institutions. These include pension funds, banks and insurance companies. They pool together the money received from a large number of individual end investors into funds such as investment trusts and unit trusts to make larger scale investments. These investments may be made in a wide variety of assets, including stocks, bonds, real estate and commodities. Each type of asset tends to react differently to world events and market forces, so a diverse portfolio can reduce the risk of loss.
The best investment is one that fits your goals and time horizon. If you have a short time horizon, it’s probably best to stick with safer investments like savings accounts or certificates of deposit. If you have a longer time horizon, you can take more risks and potentially see better returns on your investment. However, remember that riskier investments are typically more volatile.
Regardless of your investment objectives, it’s important to start early. This gives your investments a chance to grow over time, thanks to compounding. If you invest $1,000, for example, it will grow to $1,967 over 10 years if it earns an average return of 7% per year.