The capital market is a vehicle through which people or companies can participate in other companies’ results. It can be through debt (lending money to that company and receiving the borrowed money plus interest in exchange) or participating directly in the property and, therefore, in the benefits that the company’s activity generates.
The ideal would be to invest in all of them. If the construction company does poorly in a year, but the mining company does well, you will still have gain. On the other hand, if only the mining company is invested and the price of the minerals it extracts and sells is trading down, the investment money will be reduced.
We call this diversifying, not putting all your eggs in the same basket.
Building an investment portfolio that is diversified enough to be profitable and safe, protected from market fluctuations and prices, is very expensive. Only a few people and organizations can afford it. This is why there are mutual funds. Mutual funds combine your money with other investors to get shares of a collection of stocks, bonds, and other securities. This is referred to as a portfolio.
Advantages and tools of investment funds
Mutual funds are not a gambling mechanism. They are a savings and investment vehicle, probably the most widely used and widespread in the world. Another advantage they have over time deposits is that you can withdraw the money with very few days’ notice.
It is much more profitable over time and helps build capital to acquire a good or service in the future. Besides, it creates a healthy saving habit. You can even program an account so that every month the bank transfers an amount determined by the investor to the mutual fund. Investing has never been easier.