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Our Investing
Business investment opportunities are largely contingent on the prospective rate of return or profit of a proposed business venture. The return on investment (ROI) is the ratio of money gained to the amount of funds invested. In case of passive investing(into shares and bonds), the ROI (or rate of return) includes a stream of income (dividends for shares and interest for bonds) as well as capital gains (appreciation in share or bond prices over time).
The rate of return from a business investment is more than a function of the expected cash flows and capital appreciation. Since inflation erodes the value of money, it is important to consider the time value of money. The annual percentage return realized on an investment and adjusted for changes in prices on account of inflation or other external effects is known as the real rate of return.In the case of investment, rather than store the good produced or its money equivalent, the investor chooses to use that good either to create a durable consumer or producer good, or to lend the original saved good to another in exchange for either interest or a share of the profits.
In the first case, the individual creates durable consumer goods, hoping the services from the good will make his life better. In the second, the individual becomes an entrepreneur using the resource to produce goods and services for others in the hope of a profitable sale. The third case describes a lender, and the fourth describes an investor in a share of the business. In each case, the consumer obtains a durable asset or investment, and accounts for that asset by recording an equivalent liability. As time passes, and both prices and interest rates change, the value of the asset and liability also change.Business investment refers to the commitment of funds to a business either in an active capacity or as a passive investor.
An active investor would provide seed capital or startup capital, pre-IPO funds or franchising finance. However, most people seek business investment opportunities as passive investors, purchasing stocks and bonds. Business investment decisions require a risk-return tradeoff analysis.
Investing is the proactive use of your money to make more money or, to say it another way, it is your money working for you.Investing is different from saving. Saving is a passive activity, even though it uses the same principle of ompounding. Saving is more focused on safety of principal (the amount you start out with) and less concerned with return.