Making Cents of Online Investment Services
Investment generally results in acquiring an asset, also called an investment. If the asset is available at a price worth investing, it is normally expected either to generate income, or to appreciate in value, so that it can be sold at a higher price (or both). Investors generally expect higher returns from riskier investments.
Financial assets range from low-risk, low-return investments, such as high-grade government bonds, to those with higher risk and higher expected commensurate reward, such as emerging markets stock investments. Investors, particularly novices, are often advised to adopt an investment strategy and diversify their portfolio. Diversification has the statistical effect of reducing overall risk.
Someone is sitting in the shade today because somebody had the foresight to plant a tree a long time ago. — Warren Buffet
An investor may bear a risk of loss of some or all of their capital invested, whereas in saving (such as in a bank deposit) the risk of loss in nominal value is normally remote. (Note that if the currency of a savings account differs from the account holder’s home currency, then there is the risk that the exchange rate between the two currencies will move unfavorably, so that the value in the account holder’s home currency of the savings account decreases.) Speculation involves a level of risk which is greater than most investors would generally consider justified by the expected return. An alternative characterization of speculation is its short-term, opportunistic nature.
Investments are often made indirectly through intermediary financial institutions. These intermediaries include pension funds, banks, brokers, and insurance companies. They may pool money received from a number of individual end investors into funds such as investment trusts, unit trusts, SICAVs etc. to make large scale investments. Each individual investor holds an indirect or direct claim on the assets purchased, subject to charges levied by the intermediary, which may be large and varied. Approaches to investment sometimes referred to in marketing of collective investments include dollar cost averaging.
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