Understanding Investment: Types, Benefits, and Risks

Understanding Investment Types, Benefits, and Risks

Nikereact.org – Investment is a form of investing in assets or funds of a company or individual for a certain period of time to achieve higher returns in the future. There are many things associated with this activity, some of which are the means and ends of the investment itself. The term “investment” is not a foreign language for those who have been in the investment world for a long time, both domestically and abroad.

However, beginners need a basic understanding and a brief and clear explanation of what investing is and how to do it. This is a short description for those who are interested in investing activities and are new to it. There are still many people who doubt whether the investment is profitable or even detrimental. No wonder many people think so, because many people often go bankrupt because of their investments.

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But behind that, there are also many people who are successful and rich through investment. Take, for example, Warren Buffett, who has been investing since he was 11 years old. So don’t be surprised if his total wealth is $72.5 billion, which if translated into rupiah is around 1061 trillion. To recognize it, here is an explanation of investing and tips on how to do it easily:

Understanding Investment

Understanding Investment Types, Benefits, and Risks

As mentioned above, investing is a way to increase the amount of money and assets that  currently has. The concept is different if we intend to collect more money than profit in the future to achieve certain goals. From the OJK’s definition of investment, it is related to the long term to increase assets completely or acquire shares or other securities for profit.

Investing is a way to increase wealth with minimal effort. What matters is that when  invests, all  has to do is invest and wait for money to grow. So don’t be surprised if investors say they make money even if they fall asleep. That is one of the most striking characteristics of investing.

For example, spending 1 million rupiah a month in the sector of funds with fixed income. During this period,  will earn 40% profit. This means that when you make a withdrawal, your money will increase by Rp. 4 million from the profits earned. From these examples, investments also have various types, such as the following:

Types of Investment

1. Types of Investments Based on Time

a. Short-term

As the name implies, this type of investment is relatively short-lived with visible results after 3-12 months. Another term for short-term investment is a temporary investment to secure assets while waiting for other investment opportunities that provide more optimal returns.

This short-term installation has two forms, namely this installation must be of high quality and the investment product must be liquid and easy to resell.  may think that short-term investing is perfect, but there are downsides to short-term investing. One is that the returns on these investments are much lower than long-term investments. The most popular of these investment methods is the investment trust.

b. Long-term

Unlike short-term investments, long-term investments fall into the category of investments that take years to show results and returns. For example, it can take up to 10 years for many investors to sell it and make a profit. Many long-term investments are simply bought without resale.

Of course, every time we start investing, we need to know the risks we are going to take. For the type of long-term investment that takes a relatively long time to generate returns, this investment generally has a much better return, but the risk is higher.

Therefore, to maximize this long-term investment, investors must also have sufficient capital.  also needs to recognize and accept that long-term investments can still be profitable in the first few years. Therefore, before deciding on this type of investment, it is necessary to analyze it thoroughly. One of the most popular long-term investment tools is investing in stocks.

2. Types of Popular Investment Instruments Used

a. Investment Trust

Based on the Capital Market Law no. 8 of 1995, an investment trust is a forum used by investment managers to raise funds from the general public with the capital they have invested in their stock exchange portfolios. As an investor,  only needs to prepare capital to invest in a stock exchange portfolio. This will be managed by the investment manager.

The securities portfolio consists of money market products, bonds and stocks.  does not need millions of rupiah in funds or capital to invest in this product. This is because  can only choose investment funds with a minimum fund of 100,000 rupiah.

Some people who own or use investment trusts as an investment vehicle know that investment trusts are considered long-term investments that tend to be safer than stocks. In addition, the funds that  disburse are already managed by the investment manager, so  does not need to monitor them all the time.

b. Share

This investment tool is the best known among the Indonesian people. Maybe is one of the people who choose stocks as an investment vehicle. That is, when  buys shares in a listed company, becomes a shareholder of that company and is entitled to a dividend equal to the percentage of shares that  owns in that company.

In addition to the right to pay dividends,  will also benefit from the difference in the selling price of the shares. Another benefit of investing in stocks is that they are liquid and easy to trade. Therefore, if the share price rises, can transfer the shares to someone else.

From the explanation above, we can conclude that the profit that can be achieved may be higher than other types of investments. However, this highly profitable and highly profitable form of investment is risky due to price volatility and is strongly influenced by certain economic, political and circumstances, such as: B. It depends on holidays.

c. Gold and Precious Metals

In addition to stocks, gold and precious metals are one of the investment tools known to the Indonesian people from the past until now. This investment is also suitable for  who want long-term investments and tend to be safe, along with rising gold and precious metal prices. Fortunately, this increase is due to the response to certain situations that lead to the value of the investment in the market.

Stocks and bonds have declined. The tendency of prices to rise and stabilize is also the reason why many people invest in gold and precious metals. Investing in gold and precious metals can be an option for those who are just starting to invest, especially for young people such as college students and university students.

d. Bond

Bonds are transferable certificates of medium to long term debt. Bonds include a commitment that the issuer pays interest in the form of interest for a certain period of time and at a certain time pays the principal owed to the bondholders. Bondholders’ interest income is a coupon.

The term of this investment vehicle is 1 to 10 years. The existence of these bonds is motivated by efforts to raise funds from the public to be used as a source of funding. There are three types of Indonesian bonds, namely corporate bonds, Indonesian individual bonds (ORI), and government bonds.

e. Fixed Deposit

Another investment method is time deposits which can be made at a bank. This time deposit has a higher interest rate compared to ordinary savings. In addition, time deposits have fixed deadlines, usually 3-12 months. If  withdraws funds before the specified deadline, it will be fined by the relevant bank. The higher the nominal amount that  puts as a deposit, the higher the profit of.

f. Property

Usually people will be very interested in this type of investment if they already have sufficient capital. As  knows, land and buildings are very promising long-term investments. Property values ​​that continue to increase from year to year reaching 15 to 20% are certainly very attractive. Especially if the location is strategic.

Why is it so attractive to invest in this property? One of the main reasons is that real estate has become one of the basic necessities and the risks of this investment are definitely minimized. However, to get started with this investment vehicle,  requires substantial capital to purchase and maintain its own  real estate.

g. Insurance

When hears term life insurance, probably thinks of coverage. Not only protecting yourself, but also protecting your family and the assets that  owns, such as houses, vehicles, etc. If insurance in general makes sense as protection, insurance can also be one of  options when it comes to investing  money.

This investment-based insurance is a combination of two products, namely insurance and investment trusts and other investment funds. Generally, the premium that pays is converted into units. Associations can be divided into two types: premium payments and investments.

Life insurance is often used as a long-term investment. Before taking insurance, it is necessary to explain how this insurance investment will be carried out. In addition to fees,  has to pay for insurance every month. If  chooses investment-based insurance, the premiums that  have to pay tend to be higher than regular insurance.

Investment Benefits

1. Fight Inflation

Inflation occurs every year and the value of the currency decreases. Without investment, the value of  money will be eroded every year. Therefore, it is important to look for investments that have a higher return than inflation.

2. Adding Sources of Income

Investment indirectly provides an additional source of income. Therefore, it is advisable to set aside a part of salary for  monthly investment to make  monthly salary work.

3. Achieve Your Financial Goals Faster

If could save only 1 million rupiah per month, it would take more than 8 years. However, if  invests with an average annual return of 12%, can achieve that goal within 6 years.

4. Increase Wealth Or Set

This can be applied to real estate investments, land, apartments and home purchases, which will increase prices in the future. However, the acquisition of value cannot be achieved in a short time and requires a lot of time and patience.

5. Meeting Future Needs

With many unexpected needs in the future, it is very suitable for investment to meet the needs that support the future. Investing in the present aims to support and sustain future life as value increases.

6. Simple Lifestyle Or Thrifty

With an investment, a person tries to live a simple life to stay invested and ultimately avoids buying something less important and more economical.

7. Avoiding Debt

With a simple lifestyle, people avoid debt. Those who are obliged to invest prefer to avoid debt and live simply to improve their economic situation.

Tips on How to Invest to Get Profit

Investing is one of the strategies that can use to plan finances in the future, which is why it takes certain ways so that the investment can generate profits, such as the following tips:

1. Have a Clear Goal

Why is purpose so important in investing? This is because it is difficult to determine the next steps to be taken without a clear goal. Goals determine what type of investment  should make, from the time frame to the type of investment and objectives.

2. Can Assess How Much Capital Can Be Prepared

This stage describes the money or assets that  currently owns. Currently,  can invest with a capital of less than IDR 100,000. Capital also affects the types of investments such as gold, stocks and real estate.

3. Understand the risks to yourself as an investor and the type of investment taken

Everything related to the circulation of money cannot be separated from the profit and loss factor. Risk to yourself means financial performance. Of course, if  decides to invest, prepare some money in advance, both upfront and in the process. In this case, must first pay off the debt with a stable income period and additional funds.

4. Pay Attention to Legal Aspects (Ensuring According to the Field of Business)

After knowing the type and investment product needed, when buying an investment product, it is necessary to determine whether the selling agent or provider has obtained a business license in accordance with business activities.

5. Understand Who the Regulators Are

Make sure  knows who the regulatory authorities are that oversee companies that sell and provide investment products. This is necessary if something happens in the future.

6. Read the Terms Related to the Product Carefully

Product rules should be read carefully. This is to ensure that consumers fully understand the rights and obligations, benefits, costs, and risks associated with the product.

Investment Risk

After realizing that investing is not easy, must be able to estimate the risk. There is a term “high risk, high reward”. This means that the higher the potential return on  investment, the higher the risk. On the other hand, products with low potential returns are usually less risky.

People usually associate time deposits as “low risk, low return” as one of the last options on the spectrum. This is because the funds developed in deposits are usually guaranteed by the Deposit Insurance Corporation (LPS). However, time deposits have the disadvantage of having relatively low yields compared to other products.

On the other hand, stocks or stocks are usually classified as having large upside potential, but the risk is relatively high when compared to commodities such as deposits and bonds. Another example is investing in cryptocurrency investments, which are currently growing rapidly due to their very high profit potential, also known as “high risk, high return”. The risk is that the value of crypto assets can decline quickly and drastically.

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