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What is an investment?

Anyone who allocates capital with a particular objective can be seen as making an investment. The use of money is, therefore, essential for investments. The term investment is derived from the Latin word “investire,” which translates as "to clothe" or "to equip." In finance, "invest" refers to providing a personal objective or company with external capital to buy shares or bonds. Financial assets such as shares and bonds are typically seen as capital investments. There are many ways to invest, like funds traditionally managed by a fund manager, also the buying of shares in a company which entitles the investor to profits and dividends.

Attaining a yield on your investment

In addition to receiving dividends when investing in a company, investors also hope for their shares to increase, which depends on an array of factors like the company’s performance through a volatile market.

Buying bonds is also a great way to achieve a consistent yield based on interest on your investments. The interest the bond yields depends on the credit rating of the country or company issuing the bond. The interest payment, also called a coupon, is based on the bond's maturity, which is generally considered a more defensive investment than stocks.

Put your money to work.

If you invest and gain interest on your investment, you can make your money work for you through the compound interest effect. Reinvesting the income at the same interest rate is a prerequisite for the compound interest effect. Interest is not deducted from the investment but instead reinvested continuously, and that means that the capital you started with from which the interest is paid keeps increasing constantly.

Time is your friend, and the longer the investment term, the stronger the compound interest effect; the same goes for dividends received. Comparisons between Investing, Saving, and Trading

Investing and saving are both ways of putting capital aside for the future, but saving differs from investing. Saving is putting money aside in a secure but low-interest-bearing account with a relatively short time horizon.

Investing is all about building wealth with a long-term investment horizon, ten years plus, with a goal such as having sufficient retirement funds. When distinguishing between trading and investing, the holding term becomes relevant. The frequency of transactions also differs between investing and trading. Active trading involves significantly more transactions than investments, so a low-priced and qualitatively reliable broker is essential for traders.

Put your money to work.

Investing in Shares is suitable for long-term investing

Saving is mostly done through bonds, overnight money, or time deposits

Trading, the time horizon for trading is short- and medium-term oriented.