To invest is basically to put money into an investment with the hope of a profit/loss in the near future. Simply put, to invest simply means possessing an asset or something with the intention of making a profit from the increase in value of that asset over a particular period of time or an investment. As the investment grows the value increases and the investor earns by making a profit from the difference between the price paid for the asset and its current market worth. There are several different types of investments including financial investment, bond investing, commodity investing and individual stocks or bonds. Most of these investments are long term and are not intended to be liquidated but rather will steadily grow in value over time.
There are two main types of investing, retail and institutional investing. Retail investing refers to investors that buy and sell stocks, bonds, mutual funds, etc. Most investors do not deal directly with stock brokers; instead, they find a brokerage firm that offers them access to various stock exchanges where they can purchase and sell shares. For the institutional investor, banks, pension funds, insurance companies and other large institutions are usually the largest buyers.
Bond investing is when you pool your money together with other investors and buy government or company bonds. These forms of investment yield a fixed interest rate over a set period of years, generally from six months to a year. You can either buy individual bonds or invest in a portfolio of bonds or other securities such as certificates of deposits (CDs). Most bond investing is done through large professional firms such as Morgan Stanley and Merrill Lynch.
Another type of investment is exchange traded funds, otherwise known as ETFs. Exchange traded funds are similar to mutual funds except that you can buy multiple kinds of securities within the same fund. There are rules and regulations that govern the transfer of fund investments between investors and some rules and regulations that govern the use of ETFs within the financial portfolio. This kind of diversification is most effective when used to create a balanced investment portfolio and because ETFs are more expensive than mutual funds, they are less popular for individual investors.
Finally there are penny shares or micro cap stocks. Micro cap stocks have a price per share that is less than one dollar. Because of the nature of these kinds of investments, they are usually less stable and a great way to lose a lot of money if you are not careful. Investments in micro cap stocks are typically done by accredited investors in brokerage houses such as TIAACREF anditors who deal exclusively with these stocks. They are considered high risk because they are less liquid and have much less funding available to provide a significant level of safety.
Investing comes in many different shapes and sizes. Some people are directly involved in day to day investing, but there are others that have more time to evaluate and diversify their portfolio. There are direct investments such as bonds, mutual funds and stock funds and then there are the different levels of investment that you can make. You can invest in securities such as the stock market and fixed interest investments through different levels of an overall portfolio.