Part 1: Investment, Risk, Diversification

Welcome to The Apricot Investor’s Glossary series where we’ll take complex terminology and turn them into bite-sized pieces of knowledge, perfect for seasoned investors and newbies alike. The series starts with the fundamental vocabulary and will go into more complex terminology over time. 

Let’s start with the basics:

Investment & Investor

• Investment: Putting your money towards something (assets, businesses, etc.) with the expectation of future growth or income. 

Think of it as planting a seed of an Apricot tree – you invest time and effort (your money) today, hoping for a harvest (profit) tomorrow.

• Investor: An individual or legal entity (like a company) who has available capital (like money) to commit it with the expectation of a future return (like profit). Investors can be anyone, from seasoned professionals to beginners.

In our example, the person who plants the tree would be the investor who is planting the seeds of his/her financial future, dreams, and building wealth. An experienced investor has planted many trees and can have many gardens, while a beginner can start small and expand over time.

And just like in agriculture, investments come with possible risks.

Risk

• The possibility of losing some or all of investment. 

Investments come with possible risks. Just like planting an apricot tree, every investment carries a chance of blooming into fruitful gains or facing unexpected challenges and not bearing fruit. Bad weather, pests, even fertilizer choices can impact the tree’s growth, as unpredictable market forces or the investors’ choices can affect their investment’s potential.

One of the ways the investors deal with the risk is diversification.

Diversification 

• Investing in different types of financial instruments to mitigate risk.

Ever heard the proverb “Don’t keep all your eggs in one basket”? Across cultures and centuries, the concept of risk diversification has taken many forms. This timeless principle is used in the world of investments. 

That’s diversification in a nutshell – spreading your investment “eggs” across different baskets (asset classes, industries, companies) to minimize risk. A person planting an Apricot tree might want to plant different types of Apricots and other seeds to maximize the possibility of a good harvest. The financial market offers a variety of seeds (investment types) to choose from and diversify your investments. 

See you in Part 2 where we’ll explore more concepts and vocabulary to help you get started with investments. And remember, investing in knowledge is one of the most valuable decisions you can make.