Investing involves purchasing assets with the aim they will either appreciate in a value or generate income. People can invest in many ways, from buying gold or real-estate to putting money towards building businesses and furthering their education.
In the financial world, investing most often refers to need buying an asset, like individual stocks and bonds, mutual funds, or exchange-trade funds (ETFs) with the aim of potentially increasing your wealth over time. Most people invest for big long-term financial goals, like paying for college, buying a house, or saving for retirement.
How does investing work?
Investors aim to generate a return on their investments, most commonly through appreciation and income.
- Appreciation: When something grows in value. Think: When something’s worth more than what you put in.
- Income: When an investment puts money in your pocket without you having to sell it. This could be through a dividend, an interest payment, or even profits from real estate or a business. you may be able to automatically reinvest this income to purchase more of the asset.
- Choose an Investment: There are many types of investments, including stocks (equities), bonds, mutual funds, real estate, commodities, and more. Each type has different levels of risk and return potential.
- Buy the Asset: Once you decide what to invest in, you purchase the asset. For example, if you invest in stocks, you are buying ownership in a company. If you invest in real estate, you are purchasing a property.
- Monitor and Adjust: Regularly reviewing your investments allows you to assess whether they are meeting your financial goals. You may decide to relocate your money into different assets, especially if your goals or market conditions change.
Overall, the goal of investing is to make your money for you by generating returns over time, whether through capital appreciation (value increase) or income generation (e.g., dividends or interest).
