Investment: Definition, Objectives, Types, and Risks

Investing is an act of committing capital to certain assets to appreciate their value over time. By investing, investors are hoping for appreciation to generate profits.

Commonly known investment assets include gold, stocks, bonds, and mutual funds. Some of these assets will be managed by an agency or manager who has been authorized by the investors, such as an Investment Manager.

Profits from the development of the investment value will be distributed to investors in the reciprocity of the agreement between the two. From an economic perspective, the invested assets are not products, goods, or services that are consumed daily, but products, goods, or services that offer future benefits.

Even so, investors are encouraged to make careful and prudent investments to minimize losses. One way to do it is to diversify investments, which is an investment strategy through which investors spread their portfolio around to anticipate significant depreciation on the whole portfolio due to an event that may occur if the investment is committed to only one type of product.

Since investment is a preparation for the future, it’s best to do it before all of your income is used for your daily needs and desires or better known as paying yourself first.

Simply put, the objective of the investment is to provide financial profits for future needs. However, there are still many other objectives of investment, such as:

1. Increase assets and wealth,
2. Prepare for a stable financial condition in the future, or for a retirement fund,
3. Establish and cultivate a provident lifestyle,
4. Have an emergency fund,
5. Achieving future financial goals,
6. Provide protection against assets from inflationary pressures, or maintain money value from inflation,

The types of investments are classified based on the form, terms, and risks. Based on the terms, investments are divided into short-term, medium-term, and long-term investments.

Meanwhile, based on its form, investments are divided into real and financial assets. Real asset investment is an investment in a tangible asset such as land, property, and precious metal.

Financial asset investment is an act of committing investment assets in the form of securities such as stocks, mutual funds, bonds, and deposits.

The final type of investment is classified based on the product. There are low-risk and high-risk investment products or instruments. The following is the explanation of each investment product.

1. Mutual Funds

Mutual fund investment is an investment made up of pool money collected from investors or known as joint holding and henceforth invested in portfolios of securities run by an investment manager.

This type of investment is suitable for novice investors, who are just learning to invest in mutual funds, and experienced investors. There are many types of mutual funds, making them suitable for various needs and risk profiles, such as money market funds, fixed-income funds, balanced funds, and equity funds. Further, investors are facilitated through an investment system carried out automatically by an IM, and the required capital to start the investment is also small, at only a few hundred thousand rupiahs.

Prior to investing, it’s better to know your risk profile to determine investment strategies. BCA will make it easier for you to understand your risk profile, make an investment through the Welma app, and exercise self-discipline in mutual funds investment with a periodic purchase feature.

2. Stocks

Stock investment refers to funds invested in a firm by an investor, for which the investor can be also addressed as the owner of said firm.

The high investment risk from the shares you own is directly proportional to the return you will earn. Therefore, it is important to have proper analytical skills to invest in particular stocks.

Ideally, investors learn how to manage stocks, know the risk profile, and explore how to develop the right investment strategies to ensure optimal investment.

3. Bonds

Bond investment refers to investment in debt securities issued by companies or the government, with returns in the form of coupons that are paid according to a certain period and the principal is paid at maturity. This type of investment has been listed on the stock exchange.

To start investing in bonds, you can sign up for an investor number and directly invest in bonds through the Welma app from BCA.

BCA offers two bond investment options, namely Government Bonds (SUN) and State Sharia Securities (SBSN) in rupiah and foreign currencies, with subscriptions starting from Rp1 million.

Investment Risks (accordion)

Investment risk is the probability of losses in which the return of investment or asset value will be lower than your expectation. For this reason, in addition to the lucrative increase in asset value, investors also need to know that there are risks await.  Investment risks include:

1. Interest rate risk, 
2. Liquidity risk,
3. Market risk,