For every investor, especially for beginners, it is very important to learn to understand various investment instruments and strategies. And in order to reduce all possible risks in the future, you need to learn how to diversify them. The ideal way to reduce the likelihood of collapse is to form portfolio investments.
So, if we talk accessible language. Portfolio investments are a certain form of investment in various types of securities with the aim of making a profit due to the growth in their value. That is, the profitability obtained through portfolio investments can be obtained in the event of a guaranteed increase in the value of purchased securities, as well as through the receipt of certain dividends. Well, in order to minimize possible losses in his investment portfolio, the investor distributes his capital into several different types of securities from different companies.
It is clear that the structure of portfolio investments may differ depending on what type of investment was chosen, from general terms investments, on the degree of profitability and on their riskiness. Portfolio investments are suitable for those investors who have free capital and want to invest it profitably for subsequent profit.
Portfolio investments have the main principles of successful implementation:
– diversification – your capital should be invested in several types of securities in order to reduce possible risks and increase the profitability of the portfolio;
– liquidity – most often investors need to invest money in highly liquid assets, sacrificing high profitability. This measure is due to the fact that very often it is necessary to quickly make decisions based on current market trends;
– conservatism – when an investor has taken a responsible approach to the formation of his own investment portfolio, his risks will relate not to the loss of fixed capital, but to receiving a relatively low income.
Like any other type of investment, Portfolio investments also have certain risks. Main types of portfolio investment risks:
1. Illiterate selection of securities when forming an investment portfolio, which leads to capital losses - an ineffective portfolio.
2. Purchasing or selling shares at the wrong time, which may lead to losses.
3. At the time when the issuing company undergoes re-registration or receives a license, additional direct costs appear that will affect not only the issuer itself, but also the investor.
4. Liquidity risk, which is associated with the likelihood of losses resulting from the sale of assets.
5. Risks of portfolio investments that are associated with inflation rates. That is, a very high inflation rate can negatively affect the stock market.
6. Risk of sudden change interest rates on the market can also negatively affect the value of securities in the investor’s portfolio.
7. There are other types of risks that may adversely affect the profitability of a portfolio inverter.
Direct and portfolio investments: main features
Any investment has one goal - obtaining a return on investments, and they are usually divided into direct and portfolio investments. Such investments are in most cases made by enterprise managers who have quite a lot of experience in the field of securities. Moreover, at large companies There are specially created units for this purpose. Their goal is to search for profitable options for direct and portfolio investment.
If portfolio investing is cash investments into liquid securities for subsequent income generation, then direct investment differs in that, that the money is invested in the authorized capital and assets of the company itself. In most cases, direct investment involves the purchase of a majority of the shares of the enterprise ( controlling stake), which allows the investor to take a direct part in managing the affairs of the enterprise.
Direct investments are mainly made in the long term, while the investor himself has a direct interest in further development and prosperity of the company. And to accumulate everything investment funds, special funds are created locally. Moreover, direct investment is used by large enough enterprises to open their branches abroad. Such direct investments become strategic because they can lead to an increase in the company's production and expansion of its sphere of influence in foreign markets.
Thus, the main distinctive feature direct investment from portfolio investment is the fact that direct investment gives the investor the right to receive a certain part of the income, while portfolio investment gives the right only to receive specified dividends. Moreover, with direct investment, a company can always count on various types of support from the investor himself. But with portfolio investing, the investor does not receive any right to participate in the management of the company’s affairs.
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If only I had money, I would have a real briefcase. No money - only me is real, without a briefcase...
Real investments must be - this must be remembered! Then, the briefcase real investment unlike a portfolio of securities, it has a higher % return - this also needs to be known and remembered! Investments should only be real. Your briefcase is a real briefcase! Good luck!
The portfolio is a good and profitable business. It’s better to hedge as much as possible and collect not just one briefcase, but 3 or more.
For the most part, this is what investors do. Everyone knows each other and works together. Few people decide investment portfolio collect without being based on close acquaintance.
It seems to me that in order to put together a good investment portfolio you need to know those owners of companies and enterprises from whom you buy shares. Otherwise, the briefcase will be like a one-armed bandit - lucky or unlucky.
A good investment portfolio is your knowledge + funds + necessary tools + activity and desire to receive dividends. The rest will follow...
A good portfolio should consist of at least three assets: securities, real estate and gold. Then you need to rebalance the portfolio. In short, investing in a portfolio is a lot of nuances and measures that you need to know about BEFORE you start investing!
Of the variety of investment classification grounds, official statistics distinguishes the two most common classes:
direct (strategic) investments, ensuring the creation and reproduction of fixed assets;
portfolio (speculative) investments, related to the placement of funds in financial assets.
Direct investments usually represent investments in a specific project and involve the acquisition of real assets. It's like this form of investment of entrepreneurial capital, which provides the investor with control over the activities of the enterprise And gives him the opportunity to dispose of the profit received.
Direct investment is defined as the funds required for:
construction (expansion, reconstruction, modernization) and equipping of investment facilities;
expenses for preparation of capital construction;
increase in working capital required for the normal functioning of the enterprise.
Direct investments are made without intermediaries between the investor and their recipient. They, as a rule, are medium- or long-term, which implies making a profit no earlier than in 5-7 years. Such capital investments are distinguished by the investor’s desire for qualitative changes in the process of material production and the achievement of a socially significant result.
Special mention should be made investment for the purpose of control over an enterprise by acquiring a controlling stake.
If the funds from the purchase of shares of an enterprise go directly to the issuer, who can use them for the development of production, then this is, of course, a direct investment of capital.
If a controlling stake in a company is purchased on the secondary market and the money paid for the assets is not credited to the issuer’s account, the investment is still classified as direct, since it is made with the aim of acquiring control over a specific enterprise.
Thus, a market is formed corporate control - financial business sector, in which strategic investors operate, buying large blocks of shares in the most profitable or promising companies.
Briefcase(speculative) investments are investments in the purchase of securities on the stock market for the purpose of their further resale and profit.
They represent an investment of capital, as a rule, in a group of companies by purchasing securities of various issuers in the hope that a fall in the price of shares of some companies will be compensated by an increase in the value of others.
To reduce the risk of possible loss, an investor usually purchases no more than 10% of the shares of a particular enterprise, which does not give the right to complete control over its activities. The purpose of portfolio investment is different - resale of shares when conditions on the stock market change.
Portfolio investments are characterized by short periods of capital investment, since the main task of the investor is to make a profit by forming and managing an optimal investment portfolio through transactions of purchase and sale of securities.
Since the presence of significant risks requires constant analysis of the processes occurring in the stock market, portfolio investments are the subject of professional activity.
To manage them, specialized companies and funds are created, and special groups of analysts operate who use advanced domestic and foreign developments in the field of traditional and non-traditional methods of economic and systemic analysis of processes occurring in financial markets.
Constant control over the structure of investment portfolios, combined with a flexible system for choosing an investment strategy, allows stock market participants to receive decent profits while guaranteeing the safety of investments.
Portfolio investments play an important role in the development of a modern economy.
Investments in government securities go to cover the budget deficit and thus indirectly contribute to the socio-economic development of the country.
Investments in corporate securities may result in the following funds:
directly to the enterprise, what contributes to its development (when purchasing shares of a new issue);
to their previous owner, which does not in any way affect the economic situation of the enterprise (for purchase and sale transactions of shares already traded on the stock market).
The latter form speculative capital, which is very mobile. If conditions are favorable, they can quickly and on a large scale pour into stock market countries to buy shares of promising companies, highly profitable government securities or profitable bonds. When the situation worsens, portfolio investments leave the stock market just as quickly, as happened in Russia at the end of 1998.
At the same time, in conditions of a general shortage of financial resources, such “wandering capital”, coming into the country, feeds the working capital of enterprises, expands their possibilities for maneuver, contributing to the intensification of economic activity.
Consequently, the influx of portfolio investment (as well as direct investment) contributes to the development of the economy as a whole, increases the liquidity of investments and is an indicator of development trends.
For example, strategic investors will not contribute money to authorized capitals those joint stock companies whose shares are not quoted on the stock market, that is, are not the object of portfolio investment.
Essentially, the difference between the types of investment considered is that the process of real investment is always associated with qualitative changes in the investment object, and financial investment - with quantitative ones.
One should not assume that direct and portfolio investments are antipodes. All investment funds existing in the world, in addition to direct investments, necessarily acquire stakes in enterprises in order, together with the management of the purchased company, to achieve an increase in its value. After this, their portion of the securities is sold at higher prices.
It is profitable for funds specializing in direct investments to carry out such speculative operations on the stock market, although their period is longer than when trading on stock prices.
On the global capital market in developed countries with a normally functioning securities market portfolio investment are quite widespread. The stock values in these countries are generally recognized and significant internationally. Therefore, investors invest their funds without much risk to themselves. These are, first of all, portfolios of securities of international organizations, transnational companies and foreign giant firms of highly developed countries, financial and credit institutions.
In Russia, at this stage of its development, the bulk of investments relates to direct, whereas financial investment (portfolio) is in its infancy and does not yet have a significant impact on the capital market.
The Russian stock market has a very small turnover and currently does not play a significant role in the country's economy. Formally, it exists, but it cannot be said that it operates effectively. Due to lack of demand, shares of 10-15 corporations are actually traded (RAO ES of Russia, CJSC Mosenergo, LUKOIL, Surgutneftegaz, Gazprom, Rostelecom, Sberbank and some others). Most Russian companies, although they are mainly called open, operate under the same laws under which closed corporations operate in other economies.
This is a very interesting feature of our economy.
In order for the securities market - this unique self-regulating mechanism for the redistribution of funds between industries and enterprises - to start working effectively, it is necessary:
establish uniform rules of the game for all participants in the economic process;
ensure that business becomes transparent;
free yourself from the influence of oligarchic structures on decisions government bodies.
This, in fact, is the task of the representative and executive authorities to intensify investment activity in the country.
Investments are the “infusion” of resources into the development of enterprises in order to obtain a certain percentage of profit from their core activities. There are direct and portfolio types of investments.
basic information
What is “direct investment”? Any investor has come across this concept, but not everyone understands its essence.
“Direct” investments are those in which the investor becomes the owner of at least 10% of the company’s authorized capital or buys a controlling stake (51%). Thus, by investing cash, you can take over the management of a ready-made (fully formed) business.
Direct investments are divided into two large groups:
- into share capital foreign companies(so-called “foreign investment”);
- into the country's economy.
Direct investments used by large corporations to create their branches outside the country in which the central office is located. Very often, the creation of branches occurs through the absorption of a similar, already existing business. An investor only needs to purchase a controlling stake and receive the right to manage the company.
Large monopolies are interested in buying shares of small firms that are engaged in similar activities.
There are countries where competition in some areas of production is too great, for example, in China there are a lot of small companies that assemble tablets.
If there is any investor who wants to assemble tablets in China, then it would be advisable to acquire controlling stakes in already operating companies.
Direct investing aims to operate over the long term, which is why it is often referred to as “strategic investing.”
Structure of foreign investment receipts by type
Sometimes, special funds are created to carry out direct investments, which accumulate large amounts of capital with the aim of further “capturing” the monopoly on the market. Such funds operate for at least 10 years. After the fund closes, all investors receive a payment in the amount of their investments plus a percentage of the income from the sale of assets that were resold by the fund.
Novice investors, due to ignorance or unwillingness to spend a lot of effort and time, use portfolio investing.
Portfolio investing is a passive investment of funds with the aim of obtaining short-term and immediate benefits. Portfolio investors invest in securities, bonds or shares of different companies, which form a portfolio of investments or securities, hence the name “portfolio investing”.
In essence, such investors acquire part of the company without any interference in its activities.
Portfolio investments do not involve management of the company by the investors.
However, sometimes there may be exceptions, for example, when the company is too huge and its shares are divided among many small investors. Such a company is managed by an association of investors or the largest of them.
Portfolio investing has some advantages over direct investment.
On the one hand, it is beneficial for the company itself, since its shares are owned by a large number of investors, and the controlling stake is in the hands of one investor.
On the other hand, the portfolio investor also receives a certain benefit, because he does not have to take on the responsibilities of managing the company.
The second positive aspect of portfolio investing is the minimal risk of losing money. The investor's funds are diversified (distributed) into many parts and invested in the statutory capital of several companies.
Portfolio investments consist of a company's liabilities and assets. Operations involving the purchase of assets include trading in securities (shares, certificates, bonds) of large foreign companies.
Financial liabilities can be government loans in the form of cash that the investor has.
Direct and portfolio foreign investments have a certain structure. Direct investment consists of four main categories:
- investments in fixed assets (new);
- creation of fixed assets (FF) through joint investment;
- capital investments in the modernization of the plant;
- investments for the purpose of acquiring 51% of shares.
Portfolio investments consist of investments in securities and loans to businesses or the government.
According to experts in the field of investment, today direct investment is one of the most developing types of income. Direct investments, although more risky than portfolio ones, however, they bring much more profit.
Difference between direct and portfolio investments
The fundamental difference between direct and portfolio investments is their ability to influence the company’s activities.
Dividing investments into two groups (direct and portfolio) is, of course, a convention.
Direct investments allow you to manage activities, portfolio investments do not.
Sometimes even 10% of the authorized capital is enough to manage a large enterprise (remember the example above, when the corporation is divided among many small investors).
Portfolio investment in the status capital of a company allows you to have a stable passive income, essentially without interfering with the activities of the company. and planning strategies, as well as calculation of return on investment.
ABOUT cash investments read in gold. Has gold lost its relevance nowadays?
No one can guarantee quick returns on investments, so when you invest under high percent, the risk of loss of capital is high and not welcomed by many experienced investors. Here is everything about this type of investment and advice for investors.
Who can invest?
Individuals and legal entities who use their own or borrowed financial resources can invest in direct or portfolio investments.
When deciding on the type of investment, availability plays an important role. own funds and the goal pursued by the investor.
For example, if funds are invested to preserve capital and increase it, then portfolio investments are used.
In addition, small investors also prefer portfolio investments.
If the investor’s goal is to obtain the right to manage a business, then the direct type of investment should be chosen.
Before making a decision regarding the choice of investment type, it is necessary to analyze the effectiveness of investments.
Buying real estate - type long term investment, which has both pros and cons. attract many people due to the stability of the economic climate in the country. Read about some features of the German real estate market.
Read about investing in the American stock market.
Video on the topic
One investor decided to retire in 15 years. Every month he invests 20 thousand rubles.
The goal of the experiment is to live on dividends in the amount of 50 thousand rubles per month. A public portfolio will allow you to follow movements and, if desired, join it. @dividendslife
Direct investment is investing valuables in authorized capital in exchange for corporate rights issued by business companies. Direct investment involves the establishment of a long-term relationship between the investor and the enterprise. Such participation in capital provides for sustainable influence on its development on the part of the investor.
Investments are considered direct if the investor owns a controlling stake in a business company. And the size of the controlling stake may vary within certain limits, depending on the quantitative distribution of shares between shareholders (participants).
What is portfolio investment
Portfolio investment is certain investments that involve the purchase of shares, debt and derivatives. In this case, the investment subject does not have control over the enterprise. As a rule, portfolio investments involve the acquisition of assets on the financial market.
In world practice, to classify the concept of investment as direct investment, the criterion of 10% ownership of shares (shares in the authorized capital of the issuer) is accepted. Other investments refer to transactions that are not included in direct and portfolio investments, as well as reserve assets. These are, in particular, trade (commercial loans) loans (long-term and short-term) used to finance foreign economic transactions, and liquid deposits (on demand) attracted commercial banks, credit unions, building societies and others financial institutions. These investments also include investment operations carried out in cash, as well as reinvestment of income received in national currency.
Direct investments are divided into:
1) investments made abroad (foreign investments),
2) investments in the country's economy.
And portfolio and other investments are made up of assets and liabilities. Operations with financial assets cover the purchase (sale) of foreign securities (shares, investment certificates, bonds, derivatives, etc..).
Financial obligations
Financial liabilities are transactions with domestic securities. Other investments include following assets: cash, current account balances and commercial bank deposits, loans and other assets.
Liabilities include cash in national currency, balances in current and deposit accounts with resident banks, trade loans and advances raised to support the export of goods and services, and other liabilities.
General investment activities provides for the implementation of joint production cooperation without creating legal entity. Such activities are carried out on the basis of an agreement (contract) between the parties. In this case, a separate accounting and reporting on transactions related to the use of such agreements (contracts).
There is probably no person in the world who does not accumulate material wealth, in particular money. But the purpose of accumulation can be twofold. Some use accumulated finances only for themselves, for their own personal purposes. And the latter use their savings to produce new goods or give them to another person in order to receive even more income. The additional income received can be expressed both in money and in commodity form. This second case is called investment. A person who invests his savings is called an entrepreneur, and the income received becomes an asset. To this end, direct and portfolio investments in Russia gradually began to gain momentum.
They depend on the objects in which they invest money. And depending on this, two groups of investments can be distinguished: direct and portfolio investments.
The first type of investment means investing capital in objects that create real assets of tangible and intangible properties. In this case, the assets will carry out the operational activities of economic entities.
Direct investments can be divided into:
- Material or material.
- Intangible or potential.
Potential investments are used to obtain various intangible benefits. For example, such as staff training, obtaining a trademark, conducting scientific works etc.
And direct material investments are, in turn, divided into several types:
- Strategic investments - they are aimed at creating new jobs, new enterprises in other regions. Or for the investor to purchase work complexes in another field of activity.
- Basic investments. Their main activity is the expansion of existing enterprises. Creation of new ones in the same field of activity and in the same region as before.
- Current investments. They support the ongoing production process. The main activity of these investments is the replacement of fixed assets, carrying out various types of repair work and replenishment of your stock of current and tangible assets.
- Innovative. They are divided into two groups. The first is designed to modernize an existing enterprise in full compliance with all market requirements. The second group of innovative investments is designed to help provide the investor with security in the full understanding of this term.
Direct and portfolio investments are extremely popular in the global economy.
The second type of investment is investing in different financial instruments, in particular securities. This type of investment can take various shapes is an investment of finances in equity or debt securities, in addition to them this species investment can also be considered a contribution to bank deposits. It is also advisable to mention international direct and portfolio investments.
According to experts, portfolio investments are either speculative in nature or investment-oriented. If portfolio investing is of a speculative type, then most often this means that the investor wants to receive income for a specific period of time.
If you are focused on more long term investments, then, as a rule, the investor expects to participate in the management of the investment object. That is, it means a purchase of this enterprise further.
Both types of investment imply that the intended investor has a fairly large amount of finances. Typically, those investors who have insufficient funds organize various partnerships or shares investment funds for joint participation in portfolio investments.
Portfolio and direct investments can also be made abroad. True, in some cases local authorities may impose certain restrictions on those areas of production in which foreign investors are going to make direct investments.
Various investment risks
There are internal and external investments. Internal is when an investor invests money in his own production, external is when he invests capital in other economic entities.
By terms, investments are divided into:
- Long-term – validity period of three years or more.
- Medium-term – from one to three years.
- And short-term - the capital investment period is less than a year.
But these terms may change somewhat if inflation in the country is high.
Based on the degree of reliability, investments are divided into reliable and risky. The most risky include investing in the area scientific research and developments. Indeed, in this area it is almost impossible to assess the future result and how much will have to be invested to obtain this result. Therefore, investments are mainly carried out according to government programs.
From this follows the division of investors into two groups:
- Private investors, including foreign ones.
- State and municipal investors.
In most cases, the volume of both direct and portfolio investments implies impressive amounts, so large investors do not risk investing their money without a preliminary analysis of efficiency, especially if the investment object is unfamiliar to them. Sometimes independent analysts are even hired to assess the effectiveness of future capital investments.