What is investing and why should we do it?
WHAT IS INVESTING?
Investing involves putting money into certain instruments (or assets), with the goal of making a profit on top of the initial investment you put in.
Principally, investing is all about making your money work for you, and can be a highly effective way of growing your savings.
There are many different avenues open to investors when it comes to choosing where to put their spare cash. They can select from a varied list of options, often called as “investment vehicles”.
The term “investment vehicle” refers to any method by which individuals or businesses can invest and grow their money.
Some examples of these vehicles include well known options like stocks and funds, but also real estate, currencies, commodities and more.
Each of these different vehicles or assets performs differently, and have different levels of risk associated with them. An investors tolerance to risk will often dictate where they choose to invest.
Conventionally, investing is usually done through the purchasing of shares in a company, otherwise known as buying a stock. A stock market (otherwise known as an equity market), is an exchange where individual shares are traded (exchanged).
When investors buy shares of a company, they are effectively taking a stake in that business, and their invested cash is tied to the financial performance of the company over time. In the case of stocks, we invest in the hope that over time we will generate a return on the money we invested, as the stock we chose rises in price. A stock increases in value as the company grows and improves its economic standing, (its profits, revenues, earnings-per-share ratio, etc).
The difference between merely saving and investing is the level of risk. If you choose to invest in financial instruments like stocks, you may end up making a higher return (with a wise selection of investments), but there is the possibility you could lose your money too, due either to bad decisions (choosing stocks that are doomed to failure), or negative circumstances outside of your control which harm the profitability of the stocks you invest in.
In contrast, a less risky option would be to just put your money away with conventional saving, in a bank for example, which pays you interest on your deposited cash over time. Here your money is safer relatively speaking, but you may be disappointed, because it is difficult to grow your savings in an era of very low interest rates.
Naturally there is added risk when it comes to investing in stock markets, because companies may underperform, however this should not put you off pursuing investing in equities as a tool to generate income on top of your savings. With knowledge, practice and application you can become a skilled investor and avoid the regular pitfalls that can trap a novice, allowing you to take charge of your financial future.
Since there are so many different ways to invest, you can tailor your investment strategy to suit your preferred level of risk. For example, by sticking to investing in reputable and successful companies that provide important services, (commonly known as blue-chip stocks), you can take more and more risk out of the equation.
Conversely, you can invest in currencies or commodities, which tend to be much more volatile on average, as their prices are liable to change more rapidly than other instruments. Invstr lets you practice trading all of the asset classes totally risk-free with virtual money in our investment game, so you can get a sense of which style of investing suits you before you commit to the real thing.
Investing is one of many steps we can take towards securing our financial future, by allowing us to make passive income (provided that we invest correctly). Invstr can help you with making the correct choices through the vast resources available within the app including our news content, technical analysis and social features and so much more.
WHY SHOULD I INVEST?
To make money and secure our economic well-being into the future.
Beyond the simple reason of having extra cash in your pocket, the future can be a daunting prospect to think about. In this day and age, the nature of work is changing rapidly. Many jobs that have been considered secure and stable will not be so for much longer, as more of them will become automated (no longer performed by human hands). What does this mean? It means that our financial futures may be less secure, so learning how to invest and generate additional streams of income makes more sense than ever before, especially in an era of ultra-low interest rates.
Not only this, but for most people, traditional compensation such as state pensions are no longer providing enough for people to live comfortably on when they retire, let alone enough to help children and grandchildren financially.
In one way, investing can be a way of ensuring we have a nest-egg for the future. On the flip-side, those with the determination and skills can make careers out of investing.
WHY SHOULD I DO IT MYSELF?
It’s a totally reasonable question to ask. Many people who are new to the concept of investing are content to put their cash into funds. A fund manager calls the shots, and ultimately decides how the capital you invest is distributed across different asset classes, parts of the world, etc.
While it would be wrong to say this is the incorrect approach (and many funds are wildly successful), there are drawbacks. We believe one issue is that in many cases, people invest into funds based on a recommendation from someone else (a friend or relative), and don’t take the time to understand how investing actually works for themselves.
Learning to invest on your own gives you more personal ownership and control, which can be a great learning experience. You can start to do this right now by practicing investing in the investment game in Invstr, which allow you to trade with virtual money but with live market data. In this way, the stock market becomes like a game, and the entire process is risk-free! Through a combination of practice as well as reading about the markets through the news and social feeds, you can become more confident about investing and forge a new skill-set that can benefit you for the rest of your life.
When we gain a robust understanding and skill-set, we can then apply the knowledge we’ve gained to real trading, which you can do through the Invstr Portfolio. In association with DriveWealth, we’ve created a feature that lets you invest in US listed ADR’s and securities with fractional share ownership — meaning that if you don’t want to buy a stock for its full share price, you don’t have to! This means you can dip your toes into the markets at your own pace until you feel ready to invest more capital.
- Past performance of an investment is no guide to its performance in the future.
- Investments, or income from them, can go down as well as up.
- Risk can be brought about by the performance of world markets, interest rates, taxes on income and capital, and foreign exchange rates.
- You may not necessarily get back any of the amount you invested.
- Smaller company shares can be relatively illiquid, meaning they could be harder to trade, which makes them higher risk.
- Content and information about potential investments are designed for general use, and so cannot be considered personal to your circumstances or your financial position.
- Don’t drink and invest at the same time!
For more on how to become a great investor, check out our website at: www.invstr.com