How Investing Works

10 Oct

Investing is a great way to increase the money you have. Most people have invested in something—whether they realize it or not. If you have a bank account, you are investing in your bank, which is why you earn interest over periods of time based on how much money you’ve got saved. Investments can also be made through money market accounts, stocks, bonds, mutual funds, and property.

By investing, you essentially make your money liquid instead of stagnant. Investments can increase in monetary value and keep your money growing with inflation (and hopefully more). It doesn’t take a lot of money to invest; taking a small portion from each paycheck can be a great way to start.

Investments can be very simple, or very complex. The simplest forms are those we are already most familiar with, such as bank accounts. This is also the safest way to invest. That being said, if you want a bigger return on your money, you can be more aggressive and invest in the stock market. This poses a greater risk—if the market turns bad, you could potentially lose your money—but the reward can be much greater.

More aggressive investing also calls for more education and experience in the market. Many people use mutual funds or investment managers to advise them on where to put their money. Quarterly earning reports, like the one presented by Moody’s Raymond McDaniel at Credit Suisse’s conference earlier this year, are often used by big investors as a way to keep tabs on the market’s status.

Timing is key in any investment. Depending on when you will need the money you’re planning on investing, you can choose something more reliable like bank accounts or money market accounts. If you have a long time before you’ll need the money, consider Certificates of Deposit or mutual funds. And if you want to see a big return on your money, the stock market or more aggressive mutual funds might be the way to go. Just remember, the more aggressive the investment, the more liquidity it will have.

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