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DEFINITION:

An asset is considered to be an investment if it is purchased by a person or a business with the hope that it will produce income or profit in the future. Stocks and real estate are two examples of investments.

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Investing knowledge
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When you invest, you exchange resources (like cash or credit) for assets (like stocks or property) in an effort to profit in the future. For instance, a shareholder could buy stocks with the hope that their value would increase or in order to get dividends. A student could spend money on a college education in the hopes of beginning a rewarding profession. Although money is frequently associated with investments, you may also put your time and energy into them (like a business might do). Losses may result from an investment if the value of the purchased asset declines or if other advantages actually received (such as rent payments for a rental property) fall short of expectations. Where there is a chance for gain, there is also a chance for danger.

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What is an investment?
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When you invest, you exchange current resources (such money or time) for an item that, ideally, will provide future rewards. Ideally, if you invest a resource at the appropriate time and location, your investment might increase in value. In the stock market, for instance, you normally exchange money (an asset) for stocks when you invest. Stocks, bonds, commodities, mutual funds, and real estate are just a few examples of the numerous asset classes one may invest in. Generally speaking, the goal behind an investment is that it will eventually be profitable for the investor.
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Imagine someone purchasing a home with the anticipation that it would increase in value and fetch a higher asking price later on. A lot of folks find that an investment gives.
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Imagine someone purchasing a home with the anticipation that it would increase in value and fetch a higher asking price later on. An investment may help many people increase their total wealth or act as a source of income. Additionally, it’s critical to remember that all investments have a certain amount of risk. For instance, once you purchase a stock or piece of property, its value may drop.
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Depending on the situation, an investment can have many meanings. An investment is a purchase made with the intention of using it to generate wealth in the future. A corporation or individual from one nation may invest in commercial ventures in another nation, such as establishing a factory (aka foreign direct investments).

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What kinds of investments are there?
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You may invest your money and other assets in a range of securities, just as you can cultivate many different kinds of plants in a garden. The possible profits, dangers, and other factors, such as management costs and tax repercussions, may vary depending on the investment. Here are some instances of investments in the realm of finance:

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Stocks
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Investing in a stock is equivalent to purchasing a minor stake in a firm. Stocks resemble movie stars among financial products since they are always in the news and the topic of conversation. People frequently buy in stocks in the hopes that the stock will rise in value by the time they decide to sell it. Selling a stock at a higher price typically results in a profit (assuming the increase in price was more than enough to cover any trading fees and transaction costs). Some businesses pay common stockholders quarterly dividends as a way of distributing income to shareholders.

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Bonds
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You lend money to a government, business, or other borrowing body when you purchase a bond. In return, your debtor (also known as the bond issuer) is often required to pay back the loan along with interest. However, sometimes businesses and even whole nations are unable to satisfy their bond obligations and default—that is, they don’t make payments to the bond holders. Defaulting is typically a last choice for businesses since it may frighten away investors and make it difficult to acquire money. A bond is often a fixed-income investment, meaning it makes payments according to a set schedule. The final interest payment and repayment of the principal are normally made on the bond’s maturity date, which is also known as the bond’s end date.

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Additional investment types
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There are several more types of financial investments, including those in real estate, futures, CDs, cryptocurrencies, options, commodities, and more. It’s crucial to comprehend the terms, charges, and hazards associated before investing in any asset.

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What’s the process of investing?
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All investments call for a preliminary investment, often in the form of cash, time, or work. While it is ideal for the initial investment to increase and eventually yield a return in the form of increased financial worth or another advantage, not all investments will make a profit. Establishing an investment account with a broker or through a financial expert, such as a money manager, is typically required to invest in a financial instrument (such as stocks or bonds).
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Real estate is a popular investment choice. Consider a scenario in which you decide to purchase a home in the hopes that it may one day provide revenue in addition to providing you with a place to live. You choose to list the house for a greater price after observing the home’s worth increase over time. Or you can opt to find another renter to rent the property. In any case, the house you bought could be valuable down the road.
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Investments frequently incorporate commercial activities. Stocks, capital goods, and tangible assets are frequently linked to business investments. But a lot of businesses also make investments in people. For instance, a company may spend money on employee training to boost output.

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How can I begin investing?
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Remember that all investments have possible dangers before you invest. If you’re selecting what to invest in or whether to engage a professional to help, it’s crucial to conduct research beforehand. Understanding your investing objectives and risk tolerance can also be beneficial. Markets have historically gone through upswings and downswings, although historically speaking, the stock market has gained over longer stretches of time (20+ years). Having said that, remember that a market’s previous performance doesn’t always predict how it will perform in the future. Another crucial point is that the majority of investors have failed to outperform the market.
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Typically, creating an investing account that enables you to purchase and sell shares is the first step in becoming a market investor. Some investors could work with a broker who can place transactions on their behalf by making offers on stocks and other assets. Some people could employ a portfolio manager to look after their money. Doing your research and learning as much as you can about the markets and possibilities you are thinking about investing in is always a smart idea.

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What role do investments have in economic growth?
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A firm and the larger economy may benefit from an investor’s money growing thanks to investments. A capital market, for instance, enables a business to raise money through stock sales and the issuance of corporate bonds. A firm might increase its operations with that financing by, for example, opening a new factory, hiring additional staff, or creating a new product line. All of this may contribute to economic expansion through mechanisms like job creation and consumer demand.

Similar to a business, a government looks for investment, sometimes in the form of bonds, in order to raise money. Typically, the funds earned are used for public initiatives like funding social services or building a new roadway. This encourages the demand. Additionally, investing in one’s own education, home, or even one’s own skills and abilities might encourage consumption. Investments are frequently used by people to finance financial objectives like retirement.
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People may be more inclined to spend their money on products and services when they have more income, which can stimulate the economy. Similarly, a decline in investments is frequently associated with a contracting economy. An economic slowdown won’t necessarily follow a fall in investments, though. Even investment may increase if the economy is in decline. In reality, as the government works to boost aggregate demand, public investments frequently rise during economic downturns.

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DEFINITION:

A portfolio is a collection of financial investments, such as stocks, bonds, cash, or cash equivalents, real estate, or other wide range of investments.

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Understanding a portfolio
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A portfolio is an aggregate of your financial assets, providing an overview of how you’ve decided to allocate your money. The general audience tends to believe that a portfolio is a collection that only consists of stocks, bonds, and cash. However, more broadly, it can include other assets, such as gold, art or etc. Different factors influence how you create your portfolio, but most of all, your willingness to take risks and your time horizon.

EXAMPLE

In case a person would like to invest $10,000 and divide between different asset types. First, it’s necessary to purchase $2500 in Microsoft stock and $1500 in Netflix. If they’re worried about the performance of just two companies, they could extend their selections and choose to invest in some other companies’ stocks. The investor could also purchase municipal bonds or an index fund.

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What is a portfolio?
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A portfolio is a 30,000-foot view of your investments. It’s a big picture that gives you a perspective to understand how the core elements of your assets look like, either stock, bonds, or any other financial asset you own. It is best that your portfolio could help you to achieve the best possible return bearing in mind your risk tolerance. The combination of your assets in the portfolio should comprise both your financial needs and for how long you would prefer to own each of the assets.

Portfolios could have different shapes and forms., but sometimes they could consist of only one type of asset class, like stocks or bonds. Nevertheless, there are recommendations and common practices for what to include in your portfolio. These depend on your earnings, your lifestyle, how risky you are, or even your retirement plans. Also, when a person is discussing an investment portfolio, usually they don’t include cars or houses.

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The main purpose of having a portfolio
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Portfolios provide a window into your financial life. They’re meant to help you monitor and manage your investments.

If you need, you could diversify your assets, mixing them between different stocks, bonds, and other purposes. You could also understand if your chosen strategy is working for you or not, and then either sell one type of asset or the opposite to buy more from the other asset class. People also use target allocations in case they want to plan for different strategies. A financial planner could help you to decide what percentage to invest in stocks or bonds.

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Important aspects while building a portfolio
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Building a simple portfolio can be as easy as just buying a few stocks. That’s why most people use this approach. Once you decide to build a more intentional portfolio where returns and risks are optimized, there appears a need to include a variety of assets. Such a mix that you choose is called an asset allocation.

Let’s have a look at the three main ways to build your portfolio:

1. Rely on your own views and do everything by yourself.

2. Investments in managed mutual fund or exchange-traded fund.

3. To address to a financial advisor, someone who could choose everything for you, who would provide some advice on investing.

Two crucial aspects of building your portfolio:

1. Time horizon.

2. Risk tolerance

To determine these two parameters could be very useful, as that would help you to decide on the types of investments you should rely on.

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Risky with a long time horizon
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Aggressive investors usually choose this type of strategy and tend to buy stocks and real estate. Besides being more volatile and riskier, this strategy presents greater upside.

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Not-so-risky with a short time horizon
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Conservative investors always choose certain financial stability that goes in line with expectable returns. They invest more of their money in income-oriented investments: bonds or dividend-paying stocks of larger, more established companies.

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What about a portfolio rebalancing?
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With time, the price of some assets will rise, and others will fall. As a result, your asset allocation is likely to change. For instance, if stocks have been performing well enough compared to other assets, your portfolio might have a higher concentration in stocks and lower in other assets.

Rebalancing implies a certain shift of your portfolio back to the initial target allocation (or also just a revision of those targets). Once you keep in mind your initial strategy, you could always sell some extra or buy in some areas where’s underweight. Rebalancing is a good tool to keep your portfolio up with your risk tolerance.

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A few words about a diversified portfolio
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A diversified portfolio is used to manage risks by spreading your investments across different types of assets. Usually, diversification helps you to reduce volatility and smooth returns. It is certainly wrong to allocate all your money into a single asset class, as that would put your portfolio at an extreme level of risk. For example, it would be much safer to have both stocks and bonds in case of an unpredictable stock market crash.

Most bonds are not to fall as dramatically as stocks—and bonds usually provide a predictable source of income. You could minimize your losses once you’ve diversified your portfolio. Of course, it is not always a rule, as in some cases, under different circumstances, one could experience losses across all the board.

You need to be smart enough to identify assets that aren’t dependent on one another, and eventually, those that won’t fall together. When one of the assets performs poorly, the other could counterbalance it. The same story would be when you’re trying to plan your vacation in an exotic place, once the weather is fine, you would go and explore nature, but in a case when it’s a thunderstorm, you would rather bring your favorite boardgames in advance to stay indoors. By that, you would have diversification in action.
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One should not forget that diversification doesn’t prevent losses, but it could help to limit it. When you build a diversified portfolio, you have to use a mix of stocks, bonds, cash or etc.
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Diversification doesn’t prevent losses, but it can help limit them. Building a diversified portfolio typically involves a mix of stocks, bonds, and cash, and if you add real estate or, for example, gold to your portfolio, you will only strengthen it. In case you prefer to invest only in stocks, a half-century ago, researchers suggested that as few as ten stocks could help in the pursuit of stable diversification; however, nowadays, you would need more to have a truly diversified portfolio.  

Even if you decide to only invest in stocks, you can achieve a measure of diversification simply by owning more than one stock. In the 1960s, stock market researchers found that as few as ten stocks could help in the pursuit of diversification. That said, in contemporary times, many believe it takes more stocks to build a truly diversified portfolio. You could also try to diversify via acquiring stocks of both old, well-established, dividend-oriented companies and growth-oriented ones.

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The portfolio might be tricky.
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It is important to remember that no single asset allocation could be perfect for everybody. What would be best for one type of investor might never be useful for the others. Depending on the situation and one’s goals, everyone should find their best way to create an investment portfolio. Besides the ordinary risks of investing, there’re some others that require more deep research and the help of professional advisers.

DEFINITION:
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Nasdaq Stock Market is an electronic stock exchange for buying and selling stocks.

Nasdaq Composite Index of 2,500+ stocks is listed on the Nasdaq exchange. The Nasdaq tends to reflect a current situation of the broader tech industry.

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Understanding the definition:
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Tech only: The Nasdaq Stock Market is a stock exchange with its roots in technology as the first global electronic marketplace. Being rigorously built in 1971, Nasdaq was launched to make trading fast and computer-centric. With this tech focus, Nasdaq attracted a large number of technology-oriented companies to IPO on its exchange. While the Nasdaq Composite Index displays that — It’s an index made up of over 2,500 companies listed on the Nasdaq exchange. Since mostly all of them are tech companies in there, investors look to the Nasdaq index to answer the question of  “how is it going on the tech stock market ?”
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While having its roots in technology and innovation, Nasdaq is known for attracting tech companies to list their shares for IPOs. And its Nasdaq Composite index is widely used by investors as a representation of the tech industry’s performance.

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The history of Nasdaq
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You could hear the term used in two ways:

1. As a question of “How’s the Nasdaq doing?” That applies to the Nasdaq’s stock index or the Nasdaq Composite

2. The Nasdaq Exchange – the world’s first electronic trading floor on which companies, mostly tech ones, list their shares. Many of those are included in the Nasdaq Composite index in order to give a sense of the current situation in the tech sector.
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The world’s second-largest stock exchange by market capitalization and first specifically tech one was launched in 1971 by the National Association of Securities Dealers. The main goal was to implement new technologies in trading, namely, at the time, computers, to allow automated quotations and therefore to provide trading of stocks.

There was an intense rivalry with its main competitor, the New York Stock Exchange (“NYSE”), and the technological focus appeared to be the main differentiator. What is more, Nasdaq was the first platform that allowed to trade online. And it’s ultimately electronic.

With time, most of the leading tech companies were attracted by Nasdfaq’s commitment to technology. That fact made Nasdaq a popular place for innovative tech companies’ IPO listings. Different partnerships and acquisitions contributed to the NASDAQ extension, however in 2006, Nasdaq separated from its original founding partner NASD and a year later, added a Scandinavian-based Exchange, OMX.

Nowadays, with its tremendous growth in the tech sector, the NYSE has increased its focus on tech enterprises.

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A few words about Nasdaq Composite
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It isn’t enough to look at just a few stocks to understand how the market is doing. That’s why looking at the stock indexes is conducive. Such indexes turn out to be specific formulas that create a number that reflects either a broader market or a particular industry.  

Once an investor gets curious about the tech sector, it’s necessary to turn to the Nasdaq Composite. Other companies have also been listed on the Nasdaq. And a selection of more than 2500 companies is included in the Index.

Nasdaq Composite key features:

• It’s tech-oriented: and it has a heavy tech character.
• It’s weighted: The stocks are weighted in the Index to account for their different sizes (their size is their value by market capitalization). And the Index uses a formula to account for that.
• It’s not just stocks: The Index includes a variety of tech-related securities.
• It’s international:   Unlike other indexes.

You can also read more about other Indexes like the S&P 500 or the Dow in our Grid Capital Library.