A concept of accounting relays stability of monetary value. Hence, we assume that money retains its value particularly when establishing records. A critique of the concept is accounting is not our concept but to make known the contrary concept of economy. It applies in all practices but remains untrue economy wise. In economics, the concept of the stability of monetary value is untrue.
Let’s say Mr. Dawson Watt saved $1 in his savings box, and later decided to pick it up for spending after a year, he must have short-changed himself as to the value of $1, even if it is as new as mint. If he happens to keep the $ in a bank, for a same amount of time, the bank would be obliged to surrender only $1 to him. Though banks pay some interest for holding people’s money, the rate hardly match the rate that will compensate for the loss in the value of what, say $1 would purchase at the time of putting it in the bank. The situation is only a little better than putting the money in his savings box.
Investment is the act of putting money in some forms of transaction or more, explicitly, business, with an expectation at the end of it to have more than what was put into the transaction. Investing enables the investor to keep pace with the factors of the economy that are usually responsible for dwarfing the purchasing power of the nation’s money.
The true and practical position is that an investor, at reaping, usually may get the quantity of money that will, in terms of the value of what can be purchased, be equal to, more or less than what was invested. Investment needs wisdom. Money invested wisely grows with the economy.
The reason behind the above statement is that one can invest wisely and one can also invest foolishly. And to say that the wise investor and the foolish investor, given all other equal chances and conditions, will reap equal profit is an overstatement and therefore not true. There is no investment without an element of risk. The risk and falling into or aversion is the measure of how wise or foolish an investor is. In the business world, profit and risk are associated in the manner of the baby and the cord.
Investing involves capital expenditure. Capital expenditures are made primarily to acquire a stream of future benefits and in most of such decision; there is always an element of uncertainty. It is the uncertainty that breeds risk.
Unfortunately, in spite of the risks involved in investing, it is only the person that takes it that can have the chance of multiplying his resources. That’s why it is the measure of wisdom or foolishness in business.
“Nothing ventured, nothing gained”
Here, I’ll bring in the concept of opportunity cost because it is a measure of everything you sacrifice to attain a given objective. When you want to make a decision, you want to consider carefully its opportunity cost before deciding whether the gain is worth the sacrifice you must make. This concept will help you enter the new phase of money spinning business by participating in economy investing.
Categories Of Investors
§ Individual Investor
Any individual can be an investor. As an individual, you have the advantage of independent action concerning management of your portfolio.
§ Families
A couple or a family can constitute or convert their savings and/or other inherited properties or other substances to investment. It’s beneficial to convert proceeds to investment for distribution and/or management.
§ Institutional Investor
All categories of institutions and corporate bodies are allowed to own investments. Institutional investors may mobilize funds from various sources for the purpose of not only preserving them but enhancing their values by trading with the funds through capital market instruments. Hence, they have access to larger assets and authorities.
Sources Of Risks In Investment
ü Possibility of price crash
ü Possibility of non-performance upon predicted poor prospect
ü Possibility of falling into the hands of incompetent or fraudulent handlers of investor’s portfolio
ü Possibility of loss of track of the records of the investor’s activities.
Verified Solutions
o Need for regularity and continuity
o Need for tolerance
o Diversification
o Need for monitoring, enquiry and guidance
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