The Basics of Investing

Before becoming serious about investing, it is important to handle some other financial basics first, such as establishing an emergency fund and paying off high-interest debt. If you have already done that and are now looking to learn about investing, you may be confused by some of what you’re reading. Here are a few basic pieces of information that should help you navigate all of your research:

What is Investing? Investing is defined as, “Expending money with the expectation of achieving a profit or material result by putting it into financial schemes, shares or property, or by using it to develop a commercial venture,” but, in short, it simply means that you are putting your money somewhere in the hopes of earning more money by doing so!

Who should invest? As mentioned, if you have taken care of the basics with regard to your financial matters, you may want to look into investing because it will give you a chance to grow your money at a rate that outpaces inflation, especially if you are looking at a long period of time.

What are some types of investments? Some common investments include, though are not limited to, savings accounts, bonds , stocks and real estate. In the case of a savings account or a bond, you are lending your money to a bank, company or government, and they are paying you interest for the privilege of borrowing it. In the case of stocks or real estate, you are buying something (either a piece of a company or a house or building) and hoping that that purchase rises in value over the course of time that you own it.

Can I lose money when investing? Yes, as many investors learned in 2008, you can certainly lose money. There are a variety of investment products and some carry more risk than others. For example, a savings account is typically a very low-risk investment. You will not make a great deal of money with it, but you will not risk losing your money. The price of a stock changes daily, and you could lose quite a bit of money in a short time if something happens to the company whose stock you own. However, by the same token, you may make a good deal of money if the company does very well.

You may decide to do research on your own or consult a financial adviser, but because you are usually putting your money at some sort of risk level, you should always make sure you are comfortable with whatever investment plan you put in place.

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