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What is investing anyway?

What is investing anyway?

Investing. It is a term that you often hear when, for example, the news talks about banks and banking matters. Many banks, for example, invest in shares and bonds. But also as a private individual you can invest in what you want. Investing involves a lot of risks, but it can certainly also be very rewarding. Investing starts with shares. These are pieces from companies that sell those same companies to investors. A shareholder is therefore the owner of a small piece of company. Investing is therefore the money that you earn by trading in shares. For example, the investor buys a number of shares because he expects these to increase in value over time. The art of investing is knowing what share in value is going to rise. A global rule in this forecasting is that stocks of high-performing companies usually increase in value. Everyone wants a share of those companies. Because demand increases, while supply (a company has a fixed number of shares outstanding) remains the same, the price of a share increases. That is how free market forces work and that is how the stock market balances itself. But there are even more things to invest in than just stocks.

Bonds, a smaller risk

Bonds, a smaller risk

Take the bond, for example. Bond is derived from the English word obligation which means obligation. When you invest in bonds, you actually invest in participating in a loan in a company or in the state. If a company wants to take out a loan but the amount they want to borrow is too large to be able to borrow from the bank, a company will usually split the loan into a number of small loans called bonds. The company will then not borrow the money from the bank but from the public. Everyone is therefore able to purchase a bond from that company where the person buying the bond lends money to the company. When that loan is repaid then the holder of the bond will not only get his money back but also the interest. The risks are much smaller than with shares because you borrow the money here and therefore do not have the risk of a fall in prices. Also, when a company goes bankrupt, the bondholders are always redeemed first and not the shareholders.

Always be careful when investing

Always be careful when investing

There are fifty other types of investments that you can make. Think of futures, options and funds, but also other options. The fact remains, however, that whatever you invest in, investing always entails a reasonable risk. When a company where you have your money is going bankrupt in any way, you are in any case annoyed when you want your money back. Millions of people have already entered the boat once, so be especially careful when you invest.

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