Help Me Invest: Investment Tools and Security Risks

What is an Investment?

Investment is basically acquiring/buying an asset in order to generate income or profit/appreciation (Nakamura 2001). In economics, investment is defined as the purchase of goods not for consumption but for future profits. There are various types of investment options available for example- land, gold, stocks, fixed deposits, mutual funds etc. Each type of investment brings its own perks and drawbacks.

There is always a risk involved in the investment, generally, higher risk leads to higher profit. It is the responsibility of the investor to make an informed decision. Investments such as fixed deposits are less risky thus are not very profitable whereas investing in stocks can lead to huge amount of profits in a short period of time but it can also lead to huge losses thus are risky investments.

What is the Importance of Investment?

Warren Buffett bought his first stock at the age of 11 and now he is among the richest person in the world (Buffett & Clark 2006). Investment is basically giving up a little of today to earn a lot for tomorrow. There is a famous saying “put your money to work”, Lets understand the importance of investment using a simple example:-

There are two friends ‘A’ and ‘B’, both earn ₹10,000 every month. B being an aware investor decides to invest half of his income while A doesn’t understand the importance of investment. Each year B earns 10% profit on his investment each year. After 10 years, A will have 5,000 X 12 X 10 = ₹6,00,000 whereas B will have around ₹9,85,869 as depicted figure 1 . This example illustrates the importance of investment

Figure 1.

Return comparisons

How an Investor Makes an Investment Decision?

There are various aspects involved while making an investment decision, such as are the goods bought tangible, the risk involved, profit margin, government taxation policies etc. The major factors that affect any investment decision are (Masini & Menichetti 2012):

• 1.

  A Time Period of Investment - Time period is basically for how long an investor wants to invest. Traders invest on a daily basis whereas a regular person prefers to invest for a longer time period.

• 2.

  Profit: Probably the most significant factor while making an investment decision is the profit involved. Investment is basically to earn profit only therefore profit plays a major role in making an investment decision.

• 3.

  Risk: Every investment is basically a right balance between risk and profit. Nascent investors try to hedge risk and limit their profits while a mature investor who has a sense of market can play a little gamble.

• 4.

  Security: Tools that a nascent investor might use while making an investment decision have security associated with it. A mature investor tries to use secure tools and that tool might evaluate only from some confined options, thus, security also affects an investment decision.

The right balance between these factors results in a good investment decision. There are various online tools available to help an individual make an informed decision but there are security issues associated with them.