Investing

is a procedure of allocating resources, generally money, in order to get some benefit in the future.

In finance, the benefit from an investment is called a return. The return may consist of a gain (or loss) realised from the sale of a property or an investment, unrealised capital appreciation (or depreciation), or investment income such as dividends, interest, rental income etc., or a combination of capital gain and income. The return may also include currency gains or losses due to changes in the foreign currency exchange rates.

Investors generally expect higher returns from riskier their investments. When a low risk investment is made, the return is also generally low. Similarly, high risk comes with high returns.

Investors, particularly novices, are often advised to adopt a particular investment strategy and diversify their portfolio. Diversification has the statistical effect of reducing overall risk.

Types of Investments

Stocks
A buyer of a company's stock becomes a fractional owner of that company. Owners of a company's stock are known as its shareholders, and can participate in its growth and success through appreciation in the stock price and regular dividends paid out of the company's profits.
Bonds
Bonds are debt obligations of entities such as governments, municipalities and corporations. Buying a bond implies that you hold a share of an entity's debt, and are entitled to receive periodic interest payments and the return of the bond's face value when it matures.
Funds
Funds are pooled instruments managed by investment managers that enable investors to invest in stocks, bonds, preferred shares, commodities etc. The two most common types of funds are mutual funds and exchange-traded funds or ETFs. Mutual funds do not trade on an exchange and are valued at the end of the trading day; ETFs trade on stock exchanges and like stocks, are valued constantly throughout the trading day.
Investment trusts
Trusts are another type of pooled investment, with Real Estate Investment Trusts (REITs) the most popular in this category. REITs invest in commercial or residential properties and pay regular distributions to their investors from the rental income received from these properties. REITs trade on stock exchanges and thus offer their investors the advantage of instant liquidity.
Options and Derivatives
Derivatives are financial instruments that derive their value from another instrument such as a stock or index. An option is a popular derivative that gives the buyer the right but not the obligation to buy or sell a security at a fixed price within a specific time period. Derivatives usually employ leverage, making them a high-risk, high-reward proposition.
Commodities
Commodities include metals, oil, grain and animal products, as well as financial instruments and currencies. They can either be traded through commodity futures - which are agreements to buy or sell a specific quantity of a commodity at a specified price on a particular future date - or ETFs.
Real estate
Property purchased with the intention of earning income through rental income or resale, rather than as a primary residence. Real estate investors typically purchase homes to rent out to tenants, apartment buildings, and commercial buildings.
Alternative Investments
This is a catch-all category that includes hedge funds and private equity. Hedge funds are so called because they can hedge their investment bets by going long and short stocks and other investments. Private equity enables companies to raise capital without going public.

Famous investors

Investors famous for their success include Warren Buffett. In the March 2013 edition of Forbes magazine, Warren Buffett ranked number 2 in their Forbes 400 list. Buffett has advised in numerous articles and interviews that a good investment strategy is long-term and due diligence is the key to investing in the right assets. Edward O. Thorp was a highly successful hedge fund manager in the 1970s and 1980s who spoke of a similar approach. The investment principles of both of these investors have points in common with the Kelly criterion for money management. Numerous interactive calculators which use the Kelly criterion can be found online.