Inve$ting

What is “investing”?

Financial Investing means putting money into something with the expectation of gaining more money within a certain period of time. Common methods of investing are speculative financial transactions such as stocks, mutual funds, real estate, oil and gas leases, commodities, and futures.

Outside of the world of finance, investing can also refer to putting anything of value that you might have into something else, with the expectation that you will get something out of it in return. For example, you can “invest your time” in work or projects that you think will result in something good.

Why Invest?

Many people think it is a good idea to simply take their money and put it away in their bank account so that they can save up for a home or retirement. This would be the safest way to keep your money if not for one thing: inflation.

Inflation

In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money

Return on Investment

When the value of an investment rises higher than the amount of money invested, this profit is known as the return.

If a person who is worried about inflation takes their money and invests it in something that yields a higher rate of return than the current rate of inflation, then not only is their money safe, the value of their holdings should begin to grow over time.

What do you think?

• What are some reasons that people might want to risk their money investing it in financial markets?

• Are you concerned about inflation?• Besides your money and your time, what

other types of things can you invest?

StockThe stock of a company represents the original capital paid into or invested in the business by its founders.

The stock of a business is divided into multiple shares. The shares of a company may, in general, be transferred from shareholders to other people or groups by sale or other ways.

The price of a stock changes fundamentally due to the theory of supply and demand. Like all commodities in the market, the price of a stock is sensitive to demand. Essentially this means that if more people want to buy shares of a stock, those shares become more expensive.

BondsA bond is a type of investment that someone can buy from an organization (companies, governments, etc.) as a way of loaning money to that organization in exchange for agreed on interest payments over a fixed period of time.

For example you could buy government bonds that would pay 5% interest every month but you may not be able to use this money for 8 years.

Many people look at buying bonds as a safer way to invest money than stocks. However, during especially good economic times, it is possible for stock to make a lot more money than bonds, although at a higher risk.

Mutual FundsA mutual fund is a professionally managed type of collective investment that pools money from many investors to buy stocks, bonds, and/or other securities.

Each person who invests in a mutual fund is able to invest a reasonable amount of money, similar to what they might pay buying stock. However, since each fund has many investors, the fund managers are able to buy a wider variety of investments (stocks and bonds) than an average person could themselves. Investing in a variety of different things is known as diversifying, and it is a much safer way to invest than putting all of your money into a single stock.

CommoditiesWell-established physical commodities are also actively traded on markets. Generally, these are basic resources and agricultural products such as iron ore, crude oil, coal, salt, sugar, coffee beans, soybeans, aluminum, copper, rice, wheat, silver and gold. Investors hope to buy commodities when they are cheap, and then sell them later when the prices are higher.

Some commodities are a very good investment during difficult economic times. For example, the price of gold has continued to go up for most of the past thirty years.

Real Estate

Real estate investing involves the purchase, ownership, management, rental and/or sale of real estate for profit. Improvement of realty property as part of a real estate investment strategy is generally considered to be a sub-specialty of real estate investing called real estate development.

An investor can not only sell their property for a profit later on, but they can also choose to become a landlord and rent their property to people who would like to live there.

What do you think?

• What is the best way to invest your money?• Do you want to try making money on the

stock market?• Would you prefer to invest your money safely

in a diversified fund, or risk buying only one stock for a higher profit?

• Do you think that it is a good idea to buy real estate as an investment?

“Time Is Money”

"Time is money" is a saying first promulgated by Benjamin Franklin (shown here on the $100 bill) referring to the notion that time is valuable and money is wasted when a person's time is not used productively.

So, when we are considering a job or investment that might earn us a certain amount of money, we would be wise to also consider what else we might be able to do in that same amount of time that could result in even greater rewards.

Economic BubblesSpeculative investing can cause prices to change from their real value if speculators trade on misinformation, or if they are just plain wrong. This creates a positive feedback loop in which prices rise dramatically above the underlying value or worth of the items. This is known as an economic bubble. Such a period of increasing speculative purchasing is typically followed by one of speculative selling in which the price falls significantly, in extreme cases this may lead to crashes.

Stock market crashA stock market crash is a sudden dramatic decline of stock prices across a large cross-section of a stock market, resulting in a significant loss of paper wealth. Crashes are driven by panic as much as by underlying economic factors. They often follow speculative stock market bubbles.

There is no specific definition of a stock market crash but the term commonly applies to steep double-digit percentage losses in a stock market index over a period of several days.

What do you think?

• What do you think about the expression “time is money”?

• Are you concerned that the economy in your country might be heading towards a bubble?

• What would you do if there was a stock market crash tomorrow?

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