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Investing- What Is It Actually

Updated: Aug 30, 2020

Investing is many things. Investing includes research, putting down money, knowing when to sell or get out, and much more. There are many methods to invest from the most complex- derivatives- to the most basic- hard cash.


That's right, even if you might not normally think of it as an investment, holding cash is a form of investing. By holding cash, you are effectively making an investment with a 0% interest rate and zero fees. This means that when you eventually want to use the money, the amount you put away will be exactly the amount you have. The problem with this is that inflation will cause the 'real' value of your money to go down, so this is a no-risk, negative-reward investment.


This is where stock market investing comes in. Stock market investing involves buying shares in a company (or units in a fund). This means that you own a piece of the company and if the company performs well, you get part of the profits. However, this is a potentially risky business (please excuse the pun). If the company performs poorly, which could happen for any number of reasons, then the value of the shares may go down. This doesn't necessarily mean you have lost money, as the value of the shares may go back up if the company starts performing better. This makes stock market investing a high-risk, high reward investment, with the hope that by taking on this higher risk, you manage to beat inflation and grow your wealth.


In summary, investing is effectively a trade-off between risk and reward. By sacrificing the money you have now, you increase your potential future wealth, but also have a chance to lose money. There are many steps you can take to reduce the risk and increase your chances of coming out on top, like company and market research and knowing your limits.

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