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 ofvalue that you might have into something else, with the expectation that youwill get something out of it in return. For example, you can “invest your time” inwork or projects that you think will result in something good.
Why Invest?Many people think it is a good ideato simply take their money and put itaway in their bank account so thatthey can save up for a home orretirement. This would be the safestway to keep your money if not forone thing: inflation.
InflationIn economics, inflation is a rise in the general level of prices of goods andservices in an economy over a period of time. When the general price levelrises, each unit of currency buys fewer goods and services. Consequently,inflation also reflects an erosion in the purchasing power of money
Return on InvestmentWhen the value of an investment riseshigher than the amount of moneyinvested, this profit is known as thereturn.If a person who is worried aboutinflation takes their money and investsit in something that yields a higherrate of return than the current rate ofinflation, then not only is their moneysafe, the value of their holdings shouldbegin 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?
Stock The 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 anddemand. Like all commodities in the market, the price of a stock is sensitive todemand. 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 thatsomeone can buy from an organization(companies, governments, etc.) as a way ofloaning money to that organization inexchange for agreed on interest paymentsover a fixed period of time.For example you could buy governmentbonds that would pay 5% interest everymonth but you may not be able to use thismoney for 8 years.Many people look at buying bonds as a saferway to invest money than stocks. However,during especially good economic times, it ispossible for stock to make a lot more moneythan bonds, although at a higher risk.
Mutual Funds A 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 arealso actively traded on markets. Generally,these are basic resources and agriculturalproducts such as iron ore, crude oil, coal,salt, sugar, coffee beans, soybeans,aluminum, copper, rice, wheat, silver andgold. Investors hope to buy commoditieswhen they are cheap, and then sell themlater when the prices are higher.Some commodities are a very goodinvestment during difficult economic times.For example, the price of gold has continuedto 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 hereon the $100 bill) referring to the notion that time is valuable and money iswasted when a persons time is not used productively.So, when we are considering a job or investment that might earn us a certainamount of money, we would be wise to also consider what else we might beable to do in that same amount of time that could result in even greaterrewards.
Economic BubblesSpeculative investing can causeprices to change from their real valueif speculators trade onmisinformation, or if they are justplain wrong. This creates a positivefeedback loop in which prices risedramatically above the underlyingvalue or worth of the items. This isknown as an economic bubble. Sucha period of increasing speculativepurchasing is typically followed byone of speculative selling in whichthe price falls significantly, inextreme cases this may lead tocrashes.
Stock market crash A 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? If you would like to review this English corner, please go to: www.englishslide.com