Investments: Options and Risks for Beginners

You can increase the profitability of the enterprise, increase personal capital by investing free funds in new projects. Investments can also become unprofitable if the owner of the funds has chosen an unsuccessful direction. By the way, on the Santander Becas website you can find answers to many questions regarding finance.

What Is Investing In Simple Words?

It is easiest to understand what an investment is on the example of bank deposits. The owner of money entrusts his savings to a financial institution for a certain period. At the end of the agreed period, the investor is returned the funds, and a percentage is paid for their use. This option is as safe as possible, since the bank independently finds projects on which it earns at the expense of borrowed funds. For a set of this particular Santander, for a very long time, it has been increasing the capital of its depositors and investors.

Investment activity carries great risks if you approach investments without a thorough audit of projects.

The most popular areas for investment:

• Purchase of land.
• Acquisition of real estate, including non-residential/industrial premises.
• Reconstruction of existing buildings, their overhaul.
• Investments in a ready-made business (own or someone else’s).
• Purchase of copyrights, patents, licenses, other intangible assets.

Not all types of investments are available for private investors “directly”. As in the case of a bank, there are organizations that raise funds from individuals, which, as they come in, are distributed among financed commercial projects. But for a very long time, Santander has been analyzing all the possibilities. This allows you to invest in the most profitable projects.

The Difference Between Financial And Real Investments

There are many ways to invest. In addition to acquiring equipment for expanding production, residential real estate for its subsequent leasing, there is an option to purchase securities. These are stocks, bonds, bills. The latter requires the investor to have a good knowledge of the financial market, the influence of various fundamental processes on the growth and fall in the value of purchased assets.

Investments are returned gradually, depending on the profitability of the project.

All occurring types of investments are divided into two conditional groups:

• Real. Investments in inventories, fixed capital and intangible assets.
• Financial. They become an independent form of investment through the issuance of shares, bills of exchange, and other securities presented on the market in the form of a “commodity”.

The first option is more common in commercial organizations. Here, the profit can be either withdrawn in the form of profit or invested in the development of your own company. Also, the opening of new areas of activity. The second option is more suitable for private investors. When investing in securities, the risks of getting significant losses are lower, since professionals actually manage the money. By the way, if you want to know more information about investments, financial flows and lending, go to the Santander Becas website.

Options For Attracting Investments

Over time, any enterprise faces the problem of falling profitability. If this factor is not calculated in advance, management may face the fact that the only option is the liquidation (bankruptcy) of the company. This can be avoided with timely modernization and reorganization of the company. Expansion of activities. But all this requires the attraction of additional funds.

According to the source of income, investments are divided into the following categories:

• Private. You can count on them if you organize the issue of company shares. Ensure their introduction to the market, create attractiveness for investors.

• State. Local and federal authorities are usually interested in the development of innovative activities. Therefore, certain areas are subsidized at the expense of public funds.

• Foreign. May be needed to expand activities abroad or to obtain funds at lower interest rates, which is more typical for European and American banks.

Regardless of the source of financial support, a preliminary audit of the project is required. Calculation of probable profits, including taking into account all possible risks. Based on a detailed study, a decision is made on the profitability of the proposal.

Forex Investment Portfolio Compilation

The least risks can be guaranteed only by dividing investments between several types of assets. Moreover, it is recommended to select high-risk species with the probability of making big profits in a short time. And at the same time with less risky options, where they rely on stability (albeit with a lower level of profitability).

When selecting assets for investment, the following indicators are evaluated:

• Difficulty in assessing profitability/risks. Both the availability of data on previously obtained profit and the possibility of predicting the further development of the situation play a role.

• The degree of risks (directly affecting the level of income).

• Investment costs. This takes into account the minimum share required to invest in an asset (starting amount).

• Liquidity. Evaluate the possibility of selling assets at a market price in crisis situations.

• income predictability. The degree of “transparency” largely depends on the knowledge of the investor himself, how much he understands the external / internal factors that affect the value of assets.

The key parameter is the declared profitability of the project. Its average value in the investment portfolio makes it possible to compare it with the total risks, to select such a list of instruments so that in the event of a negative development of events, the investor receives at least a minimum profit. More information can be found on the Santander Becas website.

What Is Share Investing?

Investing in a business usually requires large investments. Not every private investor, even in conjunction with government subsidies, can meet the needs of a startup or a modernized production company with experience. Therefore, they are trying to find a way to attract investment, available to owners of modest savings.

The share principle of investing allows you to start with a small amount.

Examples of equity investments:

• Share in the authorized capital. The investor actually becomes the owner of the business. The percentage of profit is not known in advance, it all depends on the success of the business manager.

• A block of shares in a large enterprise. The investor acquires the amount for which he has enough funds. The value of each stock is constantly changing, you can make a profit on a fall or rise in price.

• Units of investment funds (UIF). The owners of the association themselves are looking for the most profitable ways to make a profit, investors are usually not notified of the details, but only receive final reports.

When investing, data on profitability in previous periods is usually available. But it should be borne in mind that the presence of profit in past activities does not guarantee its receipt in the future. Loss risks are always present.

What Are The Risks Of Investing?

Despite statements about guarantees of profit on any investment, most of the proposals still contain risks. They may be internal or external in nature. Therefore, not all dangers are predictable. Part of the problem is solved when compiling an investment portfolio that reduces the likelihood of losses.

Depending on the type of investment, there are risks of the following types:

• Liquidity risk. Interest in the asset may drop sharply. Its cost will be significantly lower than the purchase price, regardless of the state of the current market.

• Inflation. Purchasing power in the market may decrease so much that all assets will lose a large percentage of liquidity.

• Currency. If the assets are related to foreign currencies, devaluation in the domestic market leads to a decrease in the value of the assets.

• Legal. Changes in the regulatory framework can reduce or increase the risk of losses.

There are man-made, natural factors, but they are initially referred to as force majeure and are prescribed in contracts as separate clauses. The rest can be “adapted” with constant monitoring of changes in the financial market (domestic, global). With timely adjustment of the investment portfolio as new laws come into force.

In the following articles, together with Santander, we will touch on other aspects of financial activity. Go to the Santander Becas website and you will learn a lot of new things!