What is Investing?
Investing is basically putting your money away and getting more money in the future. Sometimes this is a guarantee, in most cases its not. Investing involves taking some amount of risk for an equal or larger amount of reward
Investment involves putting your money into “investment vehicles”. These are not actual cars but rather financial structures in which you can invest into. This could be your savings account, real estate, bonds, treasury notes, mutual funds, index funds etc.
Investment vehicles all have their pros or cons.It is important you get an understanding of these before you put your money in an investment vehicle. Savings account will guarantee you get your money back but this will be very little returns while stocks or funds can offer greater return but you also risk losing all or most of your money.
What are stocks?
Stocks(Also known as shares) are essentially used to show ownership of a company or other financial vehicles.
Buying a stock of a company of investment vehicle means you will benefit when they do well as the value of your stock will increase or if they do bad the value of your stock will go down.
If a company's value goes up 10% this means the value of your shares will have gone up 10% and vice versa.
What are Bonds?
Bonds are a type of debt which can be purchased from a company or government. By purchasing a bond you are essentially loaning out money t the bond issuer. For this you are paid a fixed amount of interest and your capital at the end of the term.Most bonds can be sold before the capital repayment is due from the bond issuer.
Mutual funds, index funds Exchange traded funds are all types of funds. These means they are made up of different company stocks or they behave like a pool of different company stocks
Assets vs Liabilities
Assets are things of value such as houses cars etc. They can be liquid or illiquid.Liquid Assets are anything that can be turned into cash relatively quickly for their fair value..
Illiquid assets will be houses, jewelry etc
Liabilities are anything that are owed or that can be perceived as a potential loss maker.
Investments vs Inflation
Investments have one big nemesis:Inflation.
For your investment returns to truly be worth anything they would have had to beat the rate of inflation.
Inflation is when the value of money falls. This means your £1 can now buy less than it could before.
Stocks have usually outperformed inflation by 4-7%.