Hello and welcome to investment journey.
In this we are going learn some main basis of investment,which can help to make your investment journey more easy & smoother.
So let's begin.
1.risk
What is risk ?
Risk is the chance that you might lose some or all of your money from an investment .
Let's understand in simple language, risk defines itself as a chance which can happen anywhere in finance area or in any financial instrument while investing.
It doesn't matter in which financial instrument or category the investment happens, the risk appears chances to lose money from any types of investment.
But as we all know that investment is not gambling that's why a well researched investment may reduce the chances of risk, but still it can remove the risk chances.
Example = A person x investor chose a financial instrument like stocks and after doing a well research of a company, he decide to invest in it and after a time period he saw the market is falling because of any event and his investment comes in risk of losses.
Now then the story tell us that either you research very well but you can not remove risk.
Important note.
( If anybody saying that they can make profit without 0 % of risk that's mean they are fraud or doing something illegal.)
That's why it is said, in finance if risk is possible then return is also possible it's mean that if risk is here then reward is also here.
2.retrun
What is retur?
In very simple language, the measure of profit and loss come out from an investment is called return.
It's mean that Return is the result of your investment which comes over the time period and the result can be gain (profit) or loss. Every financial instrument/investment catagory have their own return, it's mean evry things depends on our investment planing and strategy in which financial instrument/ investment catagory we go.
Example= imagin you invest 100$ in a stock for one year, after one year your investment value increase 20$,now your total investment value is 120$ means the return on your investment is 20$.
And same scenario for los return also , means if the stock price gone down then investment return will be negative or in lose.
Conclusion - In investment return didn't mean only profit it can refer to loss also.
3.diversification
What is diversification ?
Diversification means, allocating your money to severals investment area or category or financial instrument which may help reduce the risk of heavy losses
In simple language Diversification is a strategy in which we divide our investment money in severals investment areas this strategy help to reduce risk of heavy losses.
The strategy tell us if we invest our all money in single investment area and if it fall then we can face heavy losses rather than it we should invest our money in several parts in different areas of investment because if our one investment perform poor then maybe the other one can perform better by that we can balance our risk of losses.
Example= suppose their are 2 investors A and B
Investor A saw a investment opportunity and he invest his all investment money in single place now the investment can give him good return and there is also risk of heavy losses because of his all money tide in one investment area.
Investor B also saw investment opportunity now he use diversification strategy and allocate his investment money into different different investment areas by this he grap that investment opportunity and reduce the risk of heavy losses also because if his first investment perform bad then may be his other investment perform good and balance his losses.
NOW THEN the example tell us that using diversification strategy in investment is helpful for reducing the risk of heavy losses.
Conclusion- diversification help to reduce the risk of heavy losses, This makes it a smart and safe strategy for investing.
4.research and analysis
1. Research
What is research in investing ?
Finding or collecting information about the financial instruments like( stocks , real estate, commodity, crypto)is called research in investing.
Basically in this we have to collect information about the investment category in which we have to invest our money.
Example = we have to invest in a company.
Before investing in a company we need information about the company, that answers our question before we invest our money in that company stocks like.
- The company is growing or not ?
- Is it making profit?
- Are there any risk ?
- What do expert says about it ?
Types of research
• Fundamental research
Looking the company details like earning, sales, debts, and management quality.
• technical research
Studying stock price, chart and pattern to predict future prices.
2. Analytics
What is analytics in investing ?
After collecting all data by research, we have to analyse it for making better decision. This mean using chart and pattern to analyse all collected data to find out a good opportunity, which can help to generate a better return on investment.
Like
- Stock is overpriced or underprice.
- Stock price likely go up or down.
- How much risk is involved.
Why it is important to do research and analytics before doing investment
Without research and analytics, investing is like gambling. A good investor always try to reduce their risk and maximize their returns.
So these are the basics which a beginners should know before start investing.