What is Investing?


Investing refers to the act of purchasing assets, which are also called investments, with the expectation or goal that they will increase their value over time or pay you income. It is a way to potentially increase your money. Investing is the purchase of specific investments. This is often done through an investment account.

You may currently be saving money in a traditional bank savings account or something similar.  These bank savings accounts typically have a lower rate of return than the potential returns from investing. This is why many people consider investing for long-term goals, such as buying a house, or retirement.

 

What types of investments are there?

There are many types of investments.  Three main types of investments are: stocks, bonds,  and real estate. There are also mutual funds, exchange traded funds, or ETFs, commodities and, more recently, cryptocurrency has been considered an investment. Fine art,  antiques, and other collectables are other possible types of investments.

Let’s look more closely at the main types of investments. First, Let’s look at Stocks.

Stocks. You can buy shares of stock to get partial ownership in a company. You can share in the company’s potential gains or losses as an owner or shareholder. Stocks may also pay dividends, which are regular payments. Stocks can be risky as there are no guarantees of returns, and companies could even go out of business.

Bonds.  If you invest in bonds you are lending money to a government or company for a set period. You will receive a fixed rate return on your loan as well as the amount you originally paid for the bond. Bonds are also known as fixed income investments , and they are generally less risky than stocks. Some bonds, however, are more risky than others.

Real Estate.  Real estate can be a house, a building or piece of land. Real estate investments come with varying risk levels and can be affected by many factors such as the employment rate, school quality, and location.

Mutual Funds and ETFs. You may be interested in mutual funds and ETFs if you are looking to invest in any one of the prior investments but aren’t sure which specific investment to make. ETFs and mutual funds invest in stocks, bonds, and other types. ETFs and mutual funds allow you to invest in many assets simultaneously when you buy their shares.

How does investing work?

Investing is when you purchase an asset at a lower price and then hopefully sell it at higher prices. It’s also called appreciation when an investment increases in value between the time it was purchased and the time it is sold.

For example, a share of stock may appreciate if a company has more sales or increases its profits. A home may appreciate in value because of more jobs and people have more money and are willing to live in the area.

Investing is not only profitable due to appreciation, but also by purchasing and holding assets that produce income. Income investing does not aim to make capital gains by selling assets. Instead, it aims to purchase assets that produce cash flow over time and keep them for as long as possible. A bond, for example, may do this by paying regular interest.

What are the risks of investing?

Investing involves risk. There are many risks associated with investing. You can lose money more likely if you take on more risk. However, your investment returns will potentially grow faster if you take more risk.  It is important to decide how much risk you are willing to take when investing. Financial advisors generally recommend that you take on more risk when investing for a distant goal, such as when you are still young and want to save for retirement.

How can I start investing?

It’s easy to get started investing. You don’t even need a lot of money. To invest, you will likely need to open up an investment account.

One type of account is an online brokerage account.You might prefer the convenience of doing your research online and picking your investments by hand. For beginners, you should consider the ease of diversification offered by mutual funds and ETFs.

Another type of account is with a financial advisor. Talk to a financial adviser that is available to help new investors if you prefer getting professional help for investing. A financial advisor can help you by building a trusting relationship with someone who can help you choose and manage your investments.

In summary, investing is a long-term venture, no matter how small or large your investments. You’ll likely reap the greatest rewards if you start early, and continue to invest over time.

Categories Investing and Financial Planning

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