Whats in between planting seeds and harvesting

By Alander Pulliam

What is investing to you? Do you know the actual definition of the word investing? If not, let me give you the actual definition of investing. Invest is defined as the commitment of current financial resources in order to achieve higher gains in the FUTURE!

• Language: English
• Publisher: Lulu.com
• Release date: May 15, 2021
• ISBN: 9781008960701

Book preview

INTRODUCTION OF BOOK

Learning and Understanding Before Investing

By: Alander Pulliam

What is investing to you? Do you know the actual definition of the word investing? If not, let me give you the actual definition of investing.

Invest is defined as the commitment of current financial resources in order to achieve higher gains in the FUTURE!

It deals with what is called Uncertainty Situations. From this definition, the importance of time and future arises as they are two important elements in investments. Hence, the information that may help shape up a vision about the levels of certainty in the status of investment in the future is significant. From an economic perspective, investment and savings are different, saving is known as the total earnings that are NOT spent on consumption, whether invested to achieve higher returns or not.

Consumption is defined as one’s total expenditure on goods and services that are used to satisfy his or her needs during a particular period. The values of investment or savings, as well as consumption, can be determined at the macroeconomic level, or at the individual level, through different statistical methods.

In the current year of 2021, everyone is calling themselves investors. But the definition of an investor is above, and for the most part because you submitted funds to a cause or a product does not make you a certified investor. I wrote this book to help you become one.

DEDICATED TO M’ZAYY

Follow @Mzayydripp

ASSET CLASSIFICATIONS

Investment assets usually in investments are classified into:

Real Assets

Financial Assets

First let's start off with understanding what real assets are. Real Assets are tangible assets used to produce goods or services, such as buildings, land, machinery, or cognitive assets that are utilized in the production of commodities or services.

Second are the Financial Assets. Financial assets are claims on the real world and income generated by those underlying assets. Examples include stocks and bonds that are worthless on their own and do not directly contribute to the production of a commodity or service, but derive value from the claims they carry. The evaluation of real assets differs in some way from financial assets due to their differences. Financial assets are more liquid, and have a more regulated market. They are also fragmented into small parts which makes it easier for a larger number of interested people to enter the market. For Example, let us compare between buying a car or a plot of land, and buying a stock. One share of a company costs a lot less than a car or plot of land, and it can be sold more readily than a car or plot. As a result of this, financial assets are more popular among many. You can say that the two types of assets (real and financial) have different elements that affect their value, and both have their own market or the financial market.

Real vs Financial Assets – Differences

Understanding how these types of assets differ from real and financial investments will help us better understand their differences.

Valuation

Investing in real assets is intrinsically valuable. The market value of financial assets, however, is usually based on the underlying asset value. The underlying asset may be tangible or intangible.

Liquidity

As said above, the financial assets are liquid, and one can easily and quickly convert them into cash. Also, financial assets have a proper marketplace, facilitating quick conversion into cash.

Real assets, however, are not as liquid as financial assets. Since they are usually of high value, it takes time to find a buyer and convert them into cash. Moreover, they also lack any proper marketplace.

Tangible

Financial assets may not necessarily have a physical form. Real assets, in contrast, are present in physical form.

Growth

The growth in real assets could be very slow. Moreover, depreciation and other expenses may make real assets less attractive in the long term. In contrast, financial assets offer unlimited potential for growth. They have a low carrying cost as well. However, they are usually riskier than real assets.

Purpose

In contrast, financial assets enable investors to generate income. Or, we can say one purchases financial assets for investment purposes.

Accounting

Financial assets can be measured either at amortized cost or at fair value depending on the nature of the assets. In the accounts, real assets are measured at their historical value less depreciation. Assets are usually valued based on their prevailing market prices, when that exists. Otherwise, they are valued based on the expected value of a financial asset in the management's opinion.

Inflation Hedging

Real assets offer more protection against inflation as the value of such assets and the income they help generate grow with inflation. On the other hand, financial assets may or may not offer protection against inflation risk.

Balance Sheet

Real assets are shown on the asset side of the balance sheet. Financial assets could come on either side depending on their value.

Trade

Since financial assets are liquid and list on the exchange and have a marketplace, they are very easy to trade. Real assets, on the other hand, lack a proper marketplace and thus, are difficult to