Investing

Quick definition

Investing means spending resources now in the hope of seeing a greater return in the future.

Key details

• When we refer to ‘investing’, we usually mean the practice of putting money into financial assets such as stocks or bonds
• Investing is an active way of building your wealth, in contrast to passively leaving money to earn interest in a savings account
• The goal of investing is to see positive results over a long period: years and decades rather than weeks and months

What is investing?

In the financial world, investing is a method of increasing your wealth by buying something now with the expectation that it will be worth more in the future. This is most often done by purchasing stocks, but it isn’t limited to that and investing can take many forms. The common thread is that it usually means taking a short term risk in order to make a long term reward.

One of the defining features of investing is time. It involves sacrificing some immediate benefits – in finance, it’s money you could spend on something else, but in other parts of life it could also be the time you spend studying for a degree – in order to put yourself in a better situation later on. 

The best example of this in practice is the stock market. In the year 2001, a member of the public could have bought one share in Amazon for $20. If they held onto that share for twenty years, they could have sold it for more than $3,000 in 2021.

What can I invest in?

The most common way to invest is by putting your money into financial assets that you hope are going to appreciate in value. However, that isn’t the only way to go and there are lots of options available. Here’s a quick rundown of the different things you can invest in:

• Stocks. A stock, or share, is essentially a piece of a company. When you buy a share you own a small part of that company and the part rises and falls in value in relation to how the business performs. Some companies pay quarterly or annual bonuses to their shareholders in the form of dividends. Learn more >
• Bonds. Bonds are like loans from a private investor to a public company or a government. Each one has a fixed interest rate and a date of ‘maturity’ – essentially when the debt is paid off. Learn more >
• Currencies. You can choose to invest in the foreign exchange (forex) market by buying and selling currencies. This is a bit more complicated than buying stocks or bonds but it offers a way to speculate on how wider macroeconomic forces will affect countries differently. Learn more >
• Commodities. Commodities are raw products that play an important role in the global economy. They range from precious metals, such as gold and silver, to crucial parts of the food ecosystem such as cattle and wheat. Learn more >
• Cryptocurrencies. The newest addition to the list, cryptocurrencies are digital coins that only exist online. They offer a route into much more modern technology and could play a major role in the future of the internet. Learn more >
• Physical assets. One of the oldest forms of investing is simply the practice of buying property. Buying a house that you expect to increase in value, whether that’s through simple price appreciation or because of additions you make to it, certainly counts as investing. Even if you might need a little more money to start with in order to do so.