Investors can use two main forms of investing; direct or indirect. while
Differences between direct and indirect investing
When investors apply direct investing, they trade financial assets and manage individual investment portfolio themselves. This way, direct investing via financial markets lays all risk on the investor. Success for a direct investor comes with;
• understanding of financial markets,
• abilities to analyze and evaluate investments
• proper management of their investment portfolio
Indirect Investing
Indirect investing is realized through financial intermediaries. Those who use the indirect method trade financial instruments - of financial intermediaries – which invest lots of money in the financial markets and hold portfolios.
Advantages of indirect investing
This kind of investing saves the investor the hassle of making decisions concerning their investment portfolio. Shareholders with ownership interest in the portfolios managed by financial institutions are entitled to dividends, interest and capital gains generated and must pay their share of the institution’s expenses and portfolio management fee.
Risk involved in indirect investing
The risk for investor using this method inclines on the credibility of chosen institution and the professionalism of portfolio managers. In general, the buck stops with financial institutions that are tasked with investing in and managing a portfolio of securities.
By pooling the funds of thousands of investors the chosen companies can offer a number of services, not to mention diversification, professional management of their financial assets and liquidity.
Direct investing
Direct investing is the kind which is achieved through use of financial markets. Investors can “employ” their funds by performing direct transactions, bypassing both financial institutions and financial markets.
Advantages of direct investment
From the other side, direct transactions in the businesses are strictly limited by laws to prevent the possibility of crimes like money laundering.
Risks involved in direct investing
However, such transactions are very risky, if a large amount of money is transferred only to your hands. That makes it very important to diversify your investments.
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