What is Financial Investment?
Financial investment is the process of using financial resources to invest in financial products to generate income and profit based on time and your risk tolerance.
Financial investment is the process of using financial resources to invest in financial products to generate income and profit based on time and your risk tolerance.
1. Investment is Different from Gambling
Financial investment is not simply betting for luck to make a profit. This is a common misconception. Gambling relies on chance, and participants don't need much thought or strategy. Financial investment, however, is entirely different.
A financial investor must first plan, set specific goals, acquire financial knowledge, evaluate potential opportunities, and measure the risks of an investment.
When starting out, precise predictions may be out of reach, but by equipping yourself with the necessary knowledge and skills, you can potentially achieve profits from your chosen investment channel.
2. Investment is Different from Speculation
Speculation involves taking advantage of market fluctuations, anticipating an event that could cause price changes or scarcity, accumulating a large amount of an asset, and then selling it at a higher price for a short-term profit.
In contrast, investment is not about waiting for opportunities but is based on research, analysis of long-term trends, and focusing on sustainable growth to accumulate wealth over time.
Smart Financial Investment Types
Any form of profitable investment comes with risks. However, the level of risk and profit depends on the type of investment chosen.
Popular financial investment types include:
- Bank savings
- Gold investment
- Securities: stocks, bonds, mutual funds, derivatives
- Real estate
These forms can be categorized based on how profits are generated:
- Investments with periodic returns
- Investments with profits from price differences
Note: Some forms may offer both periodic returns and profits from price differences depending on the strategy.
1. Financial Investments with Periodic Returns
Investors earn periodic returns, which could be in cash or a liquid financial product (e.g., goods, stocks, etc.).
1.1 Bank Savings
This is the most common form of investment due to its low risk and simplicity. However, it's essential to choose reputable banks to ensure your benefits.
Because of the low risk, the interest rates are typically lower than other types of financial investments.
Suitable for:
- Saving for large expenses such as buying a house, car, or paying tuition fees.
- Retirement savings.
Periodic returns come from: Interest income.
1.2 Renting Space or Real Estate
Renting out real estate involves investing in furnishings, brokers, and services such as security and cleaning. However, it can generate stable monthly income afterward.
Suitable for:
- Individuals with inherited or self-owned properties.
- Those with significant initial capital.
Periodic returns come from: Rental income.
1.3 Bond Investment
This is one of the safer forms of securities investment, suitable for beginners.
In simple terms, a bond is a debt you lend to a company for operations, and the company pays back a portion of that debt as revenue comes in. Bonds usually have terms from six months to several years.
Suitable for:
- Those needing periodic income and capital return upon maturity.
- Individuals with a few million VND to invest.
- Basic understanding of securities transactions.
Periodic returns come from: Bond interest.
1.4 Dividend-Paying Stock Investment
Stocks are the most popular products in the securities market, but they can be challenging for beginners.
When you buy a company's stock, and the company is profitable, it may pay dividends to its shareholders. Dividends can be paid in cash (your periodic income) or in shares, which generate income only when sold at a higher price.
Suitable for:
- Individuals with stock market knowledge.
- Favorable timing when the company is highly profitable.
Periodic returns come from: Dividends.
2. Financial Investments with Profit from Price Differences
Investors earn profit by buying low and selling high.
2.1 Gold Investment
This is straightforward: purchase gold at a low price and sell at a high price. Gold is globally valued and maintains its worth over time, making it highly liquid.
Suitable for:
- Protecting against economic volatility.
- Those with secure storage and insurance for gold.
2.2 Stock Investment
Stock investment involves purchasing stocks of companies with growth potential, waiting for the price to rise, and selling at a higher price.
Suitable for:
- Individuals with financial and economic knowledge.
- Those with a specific investment plan.
- Starting capital of a few million VND.
2.3 Mutual Fund Certificate Investment
Mutual fund certificates are traded like stocks. These funds hold stocks of companies with similar characteristics (industry, region, etc.).
Suitable for:
- Non-professional investors willing to accept some risk.
- Those seeking portfolio diversification.
- Individuals with basic knowledge of securities.
2.4 Real Estate Investment
Real estate investment requires knowledge of property, economics, social dynamics, and urban development trends. It involves assessing the potential of a project through analysis of the developer's quality, location, and other factors.
Suitable for:
- Those with strong financial capabilities.
- Individuals with real estate expertise.
Tips for Choosing the Right Investment Type
Choosing the right investment depends on:
- Risk Tolerance
- Profit Goals
The sooner you start investing, the more resources you can build. Advanced skills and experience will give you more options.
1. Determine Risk Tolerance
Your risk tolerance depends on:
- Financial resources: income, assets.
- Psychological response to risk: Will you buy more when prices drop or sell to avoid losses?
- Financial management skills: Can you budget effectively to have money for investment and manage your portfolio efficiently?
2. Profit Goals
Each investment type offers different profit potentials. Researching typical returns will help you set realistic expectations.
In general, high-risk investments tend to offer higher returns, while low-risk options are more stable but less profitable.