Understanding Investments: Types, Benefits, and Risks

Definition of Investment – Investment is a form of investment of assets or funds of companies or individuals for a certain period of time to achieve a higher return in the future. There are many things related to this activity, some of which are the means and purpose of the investment itself. The term “capital investment” is not a foreign language for those who have been involved in the world of capital investment both domestically and abroad.

However, beginners need a basic understanding and a short and clear explanation of what investing is and how to do it. This is a short description for those who are interested in investment activities and are new to it. There are still many people who doubt whether the investment is profitable or even disadvantageous. It is not surprising if many people think so, because there are many people who often go bankrupt because of their investments.

But behind that, there are 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 it is not surprising 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 investment and tips on how to do it easily:

Definition of Investment

Investing is a way to increase Reader wealth with little effort. The important thing is that when Reader invests, all Reader has to do is invest and wait for Reader money to grow. So don’t be surprised if investors say they are making money even if they are asleep. That is one of the most striking features of the investment.

For example, spend 1 million rupiah per month in the fund sector with fixed income. During this period, Reader will get 40% profit. This means that when making a withdrawal, your money will increase by Rp 4 million from the profit obtained. From the case example, investment also has various types, as follows:

Types of Investments

1. Types of Investments Based on Time

a. Short term

As the name suggests, 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 the installation must be of high quality and the investment product must be liquid and easy to resell. Reader may think that short-term investments are perfect, but there are losses from short-term investments. One of them is that the return on this investment is much lower than long-term investments. The most popular investment method is the investment trust.

b. Long-term

Unlike short-term investments, long-term investments are included in the category of investments that take years to show results and returns. For example, it takes up to 10 years for many investors to sell it and make a profit. Many long-term investments have just been bought without being resold.

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

Therefore, to maximize this long-term investment, investors must also have enough capital. Reader also needs to acknowledge and accept that long-term investments can still lose 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. Popular Types of Investment Instruments Used

a. Investment Trust

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

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

Some people who own or use investment trusts as an investment tool knowing that trust investments are considered long-term investments that tend to be safer than stocks. In addition, the funds that Reader issues are already managed by the investment manager, so that Reader does not need to monitor them at all times.

b. Shares

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

In addition to the right to pay dividends, Reader will also get a profit from the difference in the sale 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, Reader can transfer the shares to other people.

From the explanation above, we can conclude that the profit that can be achieved may be higher than other types of investment. However, this very profitable and very profitable form of investment is risky due to price volatility and is strongly influenced by economic, political and certain conditions, 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 Indonesian people from the past until now. This investment is also suitable for Reader who want a long-term investment and tend to be safe, along with the increase in the price of gold and precious metals. 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.

d. Obligations

Obligations are certificates of medium to long-term debt that can be transferred. Obligations 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 to the bond holder. The bondholder’s interest income is the coupon.

The term of this investment vehicle is 1 to 10 years. The existence of this obligation is motivated by efforts to collect funds from the community 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 a term deposit that can be done at the bank. These time deposits have higher interest compared to regular savings. In addition, term deposits have a definite deadline, usually 3-12 months. If Reader withdraws funds before the specified time limit, it will be fined by the relevant bank. The higher the nominal amount that Reader enters as a deposit, the higher Reader’ profit.

f. Property

Usually people will be very interested in this type of investment if they already have enough capital. As Reader knows, land and buildings are very promising long-term investments. The property value that continues to increase from year to year reaching 15 to 20% is 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 needs and the risk from this investment is definitely minimized. However, to start this investment facility, Reader needs enough capital to buy and maintain Reader own real estate.

g. Insurance

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

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This investment-based insurance is a combination of two products, namely insurance and investment trust and other investment funds. Generally, the premium that Reader pays is converted into units. Association can be divided into two types: premium payment and investment.

Life insurance is often used as a long-term investment. Before taking insurance, it is necessary to explain how this insurance investment will be done. In addition to fees, Reader must pay insurance every month. If Reader chooses investment-based insurance, the premium that Reader must pay tends to be higher than normal insurance.

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Investment Benefits

1. Fight Inflation

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

2. Adding Input Sources

Investments indirectly provide an additional source of income. Therefore, it is recommended to set aside a portion of Reader salary for Reader monthly investment so that Reader monthly salary works.

3. Achieve Financial Goals Faster

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

4. Increase Wealth Or Set

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

5. Meet Future Needs

With the 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 maintain future life as the value increases.

6. Modest or frugal lifestyle

With an investment, a person tries to live a simple life to stay invested and in the end avoid buying something less important and more economical.

7. Avoid Debt

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

Tips on how to invest in order to make a profit

1. Have a Clear Purpose

Why is purpose so important in investing? This is because it is difficult to determine the next step that should be taken without a clear goal. The target determines what type of investment Reader should make, ranging from the time frame to the type of investment and purpose.

2. Be able to assess how much capital can be prepared

This level explains the money or assets that Reader currently has. Currently, Reader can invest with capital less than Rp100,000. Capital also affects the type of investment such as gold, stocks and real estate.

3. Understanding the Risks on 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 for yourself means financial performance. Of course, if Reader decides to invest, prepare some money in advance, both at the beginning and in the process. In this case, Reader must first pay off the debt with a stable income period and additional funds.

4. Pay Attention to the Legality Aspect (Making sure that it is in line with the field of business)

After knowing the type and investment product needed, when buying an investment product it is necessary to determine whether the seller’s agent or provider has obtained a business permit that is suitable for business activities.

5. Understand Who the Regulator is

Make sure Reader knows who the supervisory authority is that oversees companies that sell and provide investment products. This is needed if something happens in the future.

6. Read the Terms Related to the Product Carefully

Product instructions 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

People usually associate term deposits as “low risk, low return” as one of the last options in the spectrum. Because, funds developed in deposits are usually guaranteed by the Lembaga Penjaman Simpanan (LPS). However, term deposits have a weakness which is that they have a relatively low yield compared to other products.

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