1: investing definition
2: how investing works
3: investing types
4: investing vs business
Quick pick
The activity of putting money into one thing to make more of something is what makes such work activities as Investing.
Opening information:
Invest comes in two words in and vest. In means inside of something and vest outside materials of somebody.
Invest means inside the body of something. When someone or something is put inside of somebody to get more of something then it is called investing.
Investing applies to anything that can produce returns more than the initial principal amount.
Now this article contains information about what is investing, how investment works and what is the types of investing, and finally about investing vs business.
1: investing definition
Anything can become an investment when some materials or matters can able to become assets to produce cash flow.
When some matter isn’t able to produce the cash flow, it wouldn’t be possible for investments.
Let’s take a car, if someone bought the car on loan and used the car for his use it’s a liability. It couldn’t be an asset, so it couldn’t be an investment.
Instead, if the car is used to drop customers to produce cash flow then it’s become an asset. Then that purchase becomes an investment.
Investing means no matter what, if anyone buys anything and turns that as an asset to produce a cash flow of more than his initial investment amount. Then this activity is called investing.
So now let’s have a look at how investing works in everything.
2: how investing works
Let’s say you want to start a restaurant business, so your initial investment would be 153,287 dollars.
The initial investment means buying any materials for producing products or services in the restaurant.
Which also not only includes the cost of goods, instead it’s contains the decorations of the restaurant.
Any investment made returns of money from the investment, which are calculated as a percentage of return in the total invested capital.
So the restaurant business made a pure profit of $15,328 in the first year of business. It’s a huge success for them without any loss.
To understand investing, on decimal math 0.01 is called 1 percent. 0.10 is called 10 percent and 1 is called 100 percent.
Clearly to find the return any investing diving the profits with the total investment you made for such activities.
To find the restaurant business returns percentage, divide the profits amount of one year which is $15,328 with $153,287 of the total investment.
Where you get the answer of 0.099.
Which is 9.9 percent returns on the total investment. So the new restaurant produces 9.9 percent each year.
The 9.9 percent is calculated as 0.01 as one percent, so 0.099 decimal is called 9.9 percent.
This fundamental method is applied to find any investing returns on the total Investment. So now let’s dig into the types of investing.
3: investing types
When compared to assets with investing, there are lots of types of asset varieties. Investing has only two types which are active and passive investment because these two investing activities apply to any investment category.
Let’s say you bought the house for the 150k dollars and gave it for rent. The monthly rent would be 2,500 dollars.
After the house was purchased you weren’t involved in any activities for working for a house physically which is called passive income.
Because you receive the returns without being actively involved in the real estate house.
To calculate the return on the investment of the house, divide the rent of $2500 by $150,000. You would get 0.016. which means 1.6 percent every month on your total Investment.
On the other hand, you had to invest your money on your own in the stocks, which means you are involved in the activities of buying and selling a stock at any time you wish.
Where you couldn’t receive returns simply by holding a stock on yourself, you are involved in the process of making returns, so it is called active investing.
Most people confuse investing and business. So let’s have a look what is the difference between business and investing.
4: investing vs business
Where business is the work of making money on the buying and selling activities, where this must be regular work with hard work.
The business also includes multiple of its activities needed to achieve its end goals Such as marketing and future research.
But the investing won’t occupy any work on regular activities. Investing only requires the activities of buying and selling when the particular investment wants to be purchased and sold.
The key difference between investing and business is investing activities make money work for the person whereas business activities make the person work for the activities of buying and selling the product or services.