Reflection On Investment And Investment
Investments, as the dictionary defines it, is something that is purchased with money that is expected to produce income or profit. There are three basic types of investments: ownership, lending and cash equivalents.
Ownerships investments are the most profitable class of investments. Examples of ownership investments are stocks, business and Real Estate.
Lending investments allow the person investing to be the bank. Lending investments has a lower risk than ownership investments …show more content…
A saving account is a basic way to start putting money aside to reach my goals. Any person can open a savings account at a variety of financial institutions like commercial banks, savings and loan associations, and credit unions. The money in savings account are protected by FDIC insurance up to $250,000.
The big difference between savings and investing is time. Savings is about keeping some money for short-term goals. For example, I might save money now to invest it later. Money deposited into my savings account are very safe and might earn a little interest. Another important feature about a saving account is that I can withdraw my money at any time.
When I invest, it means I’m setting my money aside for future income, benefit, or profit to meet my long term goals. By investing my money, there will be no guarantee that it will grow or increase. The earnings from an investment are usually more than what I’m making in a savings account.
Time value of money is the relationship between time, money, interest and their effect on earnings growth. A dollar I receive in the future will be more or less than a dollar I have it today. A dollar I have in my hand today will worth more if I invest …show more content…
My choice will depend on several factors including current needs, future uncertainty, and current interest rates. If I wait to receive my money in the future, I want to be rewarded for the risk. Saving or investing a dollar instead of spending it today results in a future amount greater than dollar. Every time I spend, save, invest, or borrow money I should consider the time value of that money as an opportunity cost. Spending money from my savings account means lost interest earnings; however what I buy from that money may have a higher priority than those earnings.
Time value of money
Money has a time value because it can be invested to make more money. Thus, a dollar received in the future has lesser value than a dollar received today. Conversely, a dollar received today is more valuable than a dollar received in the future because it can be invested to make more money. Formulas for the present value and future value of money quantify this time value, so that different investments can be compared.
For example, one of my goals is to have $200,000 saved by the time I reach 37 years old (which is 10 years from now). I know that my bank is giving me 5% interest on my funds. To calculate how much money I need to invest today to reach my goal, I should use the