In general, there are two kinds of investment way, ie direct investment and portfolio investment. Direct investment is done by embed capital investment into real assets, such as opening of factories, infrastructure projects, setting up some financial companies, and others. At its core, there are at least four characteristics of this type of investment : a part of money capital was changed to fixed assets, usually done by a company entities, there are some management of human resources in a relatively large scale, and long term in nature. While portfolio investment is embedding of money to one country’s / region’s financial instrument, such as investment in bond market or stock investing.
In contrary to direct investment, in this type of investment investors change their money into marketable securities as one way of asset allocation and money management. The investment can be done by private or company entities, has flexibility in number of human resources employed to do it, shall be done both in short-term or long-term, and usually can be stopped immediately at the time as desired.
In accordance with title of the article, this time I will discuss at glance about the kind of familiar portfolio investment, which have their own unique character that is quite different one to another.
The first is investing in bond market.
In general, bonds are a kind of debts issued by companies or governments. When making asset allocation by buying bonds, we lend money to the bonds publisher. As a return, publishers will give us interest on the money invested, and eventually return all the money we lend. A number of interest are paid regularly (every 3 months – 6 months – 1 year), so the bonds included in the fixed income investment group. Compared to other investment instruments, bond is relatively safe especially if you buy bonds issued by the government. But, because of low risk, potential profits of bonds does not so high. Generally, the level of profits in bonds is lower than other instruments.
The second is stock investing.
When we buy shares of one company, we automatically becoming the owner of that company. Therefore, we are entitled to receive benefits that are allocated to company’s shareholders, which called dividend.
In addition to benefits such as dividend, we can also expect some profit (capital gain) of the increasing in purchased stock prices. However, this occasion does not always happen, for example, the current world stock price index has quite extremely decreased and the shareholders have some huge potential losses. In stock market, the publisher company also does not have any obligation to distribute dividends on a regular basis, so we cannot assure ourselves to get benefit from dividend. Because the risk is higher, stock investing provide relatively high benefits compared with bonds. Stock is quite good tool of money management.
In other way of investment, we can raise our money through mutual funds.
This investment instrument offers many advantages for us. In addition to flexible amount of initial capital required for the investment, we also need not spend much time to monitor our investment, because portfolio management is done entirely by investment fund managers of mutual funds company.
In mutual funds, our money and other investor’s money will be collected by mutual funds company, and the company will manage the allocation of our money into stocks, bonds, or other investment instruments. As a return, we must pay some fees to fund manager of mutual funds company for their service by managing our money. Based on the investment focus, there are several types of mutual funds, consisting of fixed income mutual funds (bonds, protected), not fixed income mutual funds (stocks, money market, the index), or a mixture of both types.
In addition to the three main instruments, there are also other instruments which have very high risk but also greater potential income, such as options market, commodity market, and foreign exchange (forex). While giving high profits, those typical investments have very high risk.
Beside investments in marketable securities, we can also make asset allocation by buying gold or property. The risk of both investment types are relatively low, but we still need to have adequate knowledge before doing such kind of investment. Investing in the form of gold is more liquid than investing in properties, but usually both investment types are made for long-term investment purposes .
With the development of information technology, nowadays people can do money management by on-line investment in these investments, in which the sellers, brokers, and investors do not need to meet each other but all transactions conducted through the websites.
Regardless the type of investment that we will do for asset allocation and money management, whether in bond market, stock investing, mutual funds, or in the form of gold and property, should we learn enough about the characteristics and risks of each investment type from other people who have experienced in this field.