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What is Investment: A Comprehensive Guide for Beginners

Investment is one of the most critical influences on the economies of countries, in addition to being the first and primary source of wealth creation for individuals throughout history.

Economists have agreed that investment is one of the most important determinants of financial growth and prosperity.

Definition of investment

The concept of investment, in general, is the process of putting money into something to make money in the long term.

In other words, investment: it is an act carried out by the investor, in which he uses a certain amount of money to buy something to achieve financial returns, or to sell this thing in the future to gain profits.

We can also define investment from two different aspects:

The economic aspect

Investment definition in economic terms as the process of buying relatively low-value products or goods at present, but economic indicators show the markets need them in the future. Then, they will be sold after a while, and financial wealth is achieved from them.

The financial aspect

In financial terms, investment is the process of buying financial assets whose value is likely to increase after a period to be sold, and making profits through the price difference between the buying and selling processes, or from its benefits while preserving its original value, such as investing in stocks and bonds.

The difference between investment and saving

Saving and investment are an essential aspect of an individual’s financial life.

Saving means that you deduct part of your income and keep it as its fixed form until you need it.

As for investment, as we mentioned, it is directing part or all of your money to a specific industry intending to achieve financial profits.

Accordingly, we find that both investment and savings complement each other, and you need to balance them to achieve financial wealth.

On the other hand, you cannot, in any way, keep all your assets in the form of savings because economic inflation rates double the value of fixed assets, which results in weak purchasing power of money as a result of the increasing rise in prices.

So, as we mentioned, a balance must be made between saving and investing in your financial life to be able to achieve wealth. At the same time, you can take the necessary precautions towards market variables to avoid going through financial crises at the time of the market collapse.

The importance of investment

Investment is the engine of the economic life of societies, governments, and individuals alike.

The importance of investment at the country level

  • Pumping investments in building factories, companies, and investment projects in various fields, effectively contributing to the diversification of the economic structure of countries and strengthening the strength of their economy.
  • Investments help governments create new job opportunities for young people, improve people’s lives, and achieve financial prosperity for them.
  • Investment helps increase production, thus increasing the volume of exports and reducing the volume of imports, which means an increased recovery of the internal economy.
  • Investment helps to strengthen the local currency of the country and allows it to cope with global inflation rates, thus creating a balance between foreign and local currencies.

The importance of investment at the individual level

1- The development and growth of your capital.

Long-term investments are the only way to guarantee you a substantial financial fortune, as it makes you achieve huge additional profits while preserving the monetary value of the assets that you invested.

2- Providing a decent financial life when deciding to retire.

Work is one aspect of life, not life in its entirety. Some people are forced to work their entire lives, as there is no other way to obtain sufficient income for the basic needs of life. Others do for specific periods during which they deduct part of their income for investment, planning to retire at a certain age, and enjoy the wealth that will be achieved by their investments.

3- Achieving additional profits with less effort.

Many types of investments do not require much effort, such as requiring you to have experience in management or to be present at the project site and supervise it to ensure reaping massive profits. One of the most critical areas of investment that does not require the effort of investing in stocks, which allows you to obtain the right of ownership in a company in exchange for the money you contribute only, without interfering with its management.

4- Achieve your financial goals.

Each of us has many financial goals and big dreams related to the availability of money, so certainly you want to buy a luxury car or a big house, or you want to travel across the world and many other dreams. The productive investment will provide you with more significant opportunities to achieve these goals from your investment returns without compromising your fixed assets.

5- Expand your commercial business.

Starting to invest in a specific field will help you expand your network of business relationships and build more effective relationships with investors in other areas, and this, in turn, will open up new opportunities for you to expand your business circle in various fields.

Investment risk

  • Inflation and rising prices.
  • Instability of financial markets and market volatility.
  • Massive foreign investment, which affects the opportunities of small local investors.
  • Lack of experience and knowledge of the investor and his inability to deal flexibly with economic variables.
  • The political conditions of the country and its relationship with other countries on the political and economic levels.
  • Competitors and major investors who have a monopoly on the market in which you invest and their ability to control prices.

All these factors and many more are considered risks that expose new investors to the chances of losing their money or the inability to continue the investment process.

Knowing how to start investing in the markets is an excellent opportunity to build wealth from investing. Just make the necessary investment at the right time and acquire the necessary knowledge beforehand. The more passionate you are to invest, the higher the investment returns will be.

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