Are you ready to make an investment?

If you’re lucky enough to have some surplus finances to spare, and you’re willing to take a gamble, investments could allow you make money but only if you play the game correctly. While the dream would be to make a huge profit for little effort, the reality is you need to put work into understanding the basics in order to make wise decisions on your investments.

There are four main investment types known as ‘asset classes’. These include cash (normally in your bank, shares (you buy a stake in a company), fixed interest securities (loaning money to a company) and property.

These are the main types of investments but others include commodities, foreign currency, contracts for difference (betting on shares gaining or losing value) and collectibles.

If you build up a collection of investments this becomes known as a portfolio. By spreading your money across a number of investments it increases the chances of success and reduces the effect of a poor performing asset.

The value of assets can fluctuate depending on the type of asset held. Fixed interest securities, shared and property all change depending on their different market values but tend to grow slowly over the long term, choosing the right one initially is the key.

Depending on the type of investment, profit is paid out in different forms. These include: interest dividends, rent, capital gains or losses (profit from when you sell the asset).

Another factor affecting the possible gains from an investment occur if you want to access to your money easily at short notice or a secure guarantee that you won’t make a loss. This creates risk for banks and the people who you have invested with, therefore they reduce the amount you can make in profit as they are footing more risk.

If you have over $1m in the bank or earn $200,000 a year you could even be eligible to invest a hedge fund whereby successful managers, such as Louis Bacon CEO of Moore Capital Management, invest your money on your behalf across a diverse portfolio of investments. This relies on finding the right manager to invest your money.

No-one likes the idea of risking their money but unfortunately, investment is a risk. The greater the risk you are willing to take, the higher the rewards for your bravery but the higher the risk, the more chance there is you could lose your money. It is always worth researching the risks of investments thoroughly before you commit.