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Introduction to the Concept of Investment
The investment industry helps individuals, companies, and governments save and invest money for the future.
Individuals save to ensure that money will be available to cover unforeseen circumstances; to buy a house, to cover their living expenses during retirement, to pay for university tuition, to fund such discretionary spending as travel and charitable gifts, and to pass wealth on to the next generation.
Companies save to invest in future projects and to pay future salaries, taxes, and other expenses.
Governments save when they collect revenues in advance or in excess of spending requirements or receive the money from bonds sales before this money is spent.
The investment industry provides many services to facilitate successful saving and investing. The investment industry provides services to those who have money to invest—individual and institutional investors who become providers of capital. Investing involves many activities that most individual and institutional investors cannot do themselves.
The Investment Process
Investors must:
• Determine their financial goals—in particular, how much money they will need to invest for future uses and how much money they can withdraw over time.
• Identify potential investments.
• Analyse the risk and return prospects of potential investments.
• Trade securities and assets.
• Hold, manage, and account for securities and assets during the periods of the investments.
• Evaluate the performance of their investments.
These activities generally require information, expertise, and systems that few individual and institutional investors have. Investors obtain assistance with these activities from investment professionals, either directly by hiring investment professionals or indirectly by investing in investment vehicles that the investment industry creates and oversees.
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