Why invest and what is it all about?

"The biggest risk of all is not taking one." — Mellody Hobson

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What is investing?

Investing is the act of allocating resources, usually money, with the expectation of generating an income or profit. It typically involves buying assets such as stocks, bonds, real estate, or other securities with the hope that they will increase in value over time. Investing can also include other activities such as starting or investing in a business, or investing in commodities such as gold or oil. The goal of investing is generally to grow wealth over the long term.

What types of investments are there?

Cash

Cash is the most easy and understandable investment asset. It not only gives investors precise knowledge of the interest that they’ll earn but also guarantees that they’ll get their capital back.

The downside of holding cash, however, is that it typically has a lower rate of return compared to other assets such as stocks or bonds. Additionally, cash is subject to inflation, which can deteriorate its purchasing power over time. Holding too much cash in an investment portfolio can also limit potential gains and miss out on opportunities in the market.

Mutual funds

A mutual fund is a type of investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. The fund is managed by a professional fund manager who makes decisions about what securities to buy and sell. Mutual funds offer investors diversification and professional management, but they also have fees and expenses associated with them.

Bonds

A bond is a type of debt security that allows an investor to lend money to an organisation (such as a corporation or government) in exchange for regular interest payments and the return of principal when the bond matures.

When an organization wants to raise money, it can issue bonds to investors, who in turn lend their money to the organisation. In return, it promises to pay a fixed interest rate, called the coupon rate, to the bondholders on a regular basis until the bond matures. At maturity, the bond issuer is obligated to repay the bond's face value (also known as the principal) to the bondholders.

Exchange-Traded Funds (EFTs)

EFTs are similar to mutual funds, however, they are traded throughout the day on a stock exchange. In this way, they behave similarly to stocks‘ buy and sell behaviour. Therefore, their value can fluctuate drastically every day.

ETFs can be based on underlying indices, like the S&P 500, or other baskets of stocks that the issuer wants to emphasize. From emerging markets to commodities, biotechnology and agriculture, and more. Investing in ETFs is extremely popular because of their ease of trading and broad coverage.

Stocks

Stocks are securities that represent shares of ownership within a company. The different shares of stocks allow investors to contribute to a company’s success through increases in the stock’s price and through dividends (share of a company's profits distributed to shareholders as either stock or cash, usually paid quarterly, like a bonus to investors). The shareholders have a claim on the company’s assets in the event of liquidation (the company goes bankrupt) but do not own the assets.

Alternative investments

• real estate - investing in properties intending to make to make money from them

• hedge funds - a limited partnership of private investors whose money is managed by professional fund managers who use a wide range of strategies, including leveraging or trading of non-traditional assets, to earn above-average investment returns

• private equity funds - the investment of equity capital in private companies, for example, an investor buys a stake in a private company with the hope of ultimately realising an increase in the value of that stake

• commodities - commodity traders bet on the future values of certain commodities depending on whether they believe the price will rise or not

Why would investing be beneficial for you?

So, you‘ve heard all about it but why should you actually invest? Well, there are numerous benefits investing can bring, especially if you are young, these include:

1. Time in the market: The earlier you start investing, the more time your money has to grow through compound interest.

2. Risk tolerance: Investors which begin early typically have a longer time horizon, which means they can afford to take on more risk in their investments. This can lead to higher potential returns.

3. Building wealth: Investing can help you build wealth over time, which can provide financial security and independence in the future.

4. Retirement savings: Investing in your youth can also be beneficial for retirement savings. The earlier you start saving for retirement, the more time your money has to grow and the less you will need to save each year.