Investing sounds like such a “grown-up” word. It sounds like a very complex thing to do and requires great education, experience or specialized knowledge to do.
It seems investing is only for a select few otherwise dabbling in it may result in you losing all your money.
All the above is more or less true. But, the same can be said for almost anything.
Think about cooking. Without education, experience or knowledge, you will likely burn all your food, undercook your food or just produce an inedible meal.
However, you do not need formal education or professional experience to be able to cook a very decent meal for yourself.
The same is true with investing.
You do not need to have a formal education or professional experience to invest for yourself to meet your personal financial goals; unless you intend to be a professional fund manager and invest other people’s money for them.
But most people have no intention of being a professional fund manager. Just as most people do not have an intention of being a professional chef where you have to prepare fine dining cuisine for paying guests.
While investing may not be easy to do at first, it is simple when you know how. It is also simple enough to learn and gets it will get easier with experience.
So, what is investing exactly?
Essentially, it means putting your money into an asset, instrument or venture with the desire to make more money.
Usually, there is an implied passiveness to investing; meaning, you do not have to actively manage your money after the initial work of choosing the investment vehicle. The money “grows” on its own. That is what people mean when they say “let your money work for you”.
You can invest in a lot of different things such as financial assets (like bank deposits, stocks and bonds), real estate, businesses, collectibles or commodities (like precious metals*, grains, oil and natural gas).
* Technically, precious metals, by definition, are not really commodities but they are classified under commodities in the investing world.
For the new investor, it is important to recognize that investments have an expectation of producing income or profit. These investments are commonly referred to as income-generating assets.
For example, a common misconception is that one’s home is an investment. That is not correct. The property that you live in is not an investment because it fills a basic need. The house you live in fills your need for shelter. You might think it is an investment as it may appreciate over time and when you sell it, you will make a profit. That is only true if you downgrade or choose to live in a cardboard box after that.
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