Trading Pursuits

Learn To Trade: Investment Basics

Learn To Trade: Despite the overwhelming number of investment options that we are offered in our society today, there are three main forms of investment available.

• We can lend money and be paid interest.
• We can purchase real estate, be paid rent and perhaps enjoy a capital gain.
• We can become a part owner in a business, potentially receive dividends and perhaps enjoy a capital gain.

These investment options are also known as Cash (or Bonds), Property and Shares.

In the investment world, each of these alternatives is always competing with each other for available funds. For example, when interest rates are low, money will flow out of savings accounts and into the share market, usually causing share prices to rise. This happens because investors are always looking for the best risk/reward ratio they can get. The total return on any investment consists of two different components:

1. Income stream; and
2. Capital gain.

An income stream takes the form of interest paid, in the case of a term deposit; rents collected on real estate; or dividends paid on shares.

The other component is capital gain. Most buyers of bricks and mortar have at least one eye (and sometimes both) on the prospect of making money on an eventual sale. Not surprisingly, those who buy shares have the same desire.

There are distinct benefits and drawbacks for each investment option, however, shares offer by far the greatest number of benefits over other investment options with very few drawbacks. They offer a good risk/reward profile, in many cases the risks can be effectively managed through diversification, option hedging, stop losses and other techniques. And shares are usually a highly liquid investment - you can get your money out at relatively short notice... unlike property or even many term deposits.

To learn more about how money flows around the world - yes, resulting in the global economy - attend our next FREE Forex trading seminar.

To find out more about Trading Pursuits' strategies, attend one of our FREE 2 hour stock market education seminars.